Red tape stifling entrepreneurship

Business Secretary Sajid Javid has announced that the Government is to launch a consultation into whether employment rules preventing employees from starting up their own business after leaving a job are “stifling British entrepreneurship”.

As part of the investigation, firms will be asked their views on ‘non-compete clauses’, amongst other employment-related issues. The results will contribute to the Government’s Innovation Plan, which focuses on promoting high tech business and advanced manufacturing.

Non-compete clauses are often written into employment contracts and can prevent people from competing against their former employer or working for a competitor. The clause stipulates a set period of time during which the former employee cannot do this, which can last for up to nine months. Anyone breaking the terms of this clause can be taken to court.

As Mr Javid pointed out, such clauses can hinder enterprising start-ups and can hold back productivity. However, legal experts are concerned that if non-compete clauses were removed entirely from contracts, then staff could potentially take contacts or intellectual property from their employer to a direct rival.

One employment lawyer commented that if the clauses were abolished, the former employer could suffer significantly, as they will have invested a lot of time and money in the employee who could just go off with the employer’s expertise and compete with them. He added that the current restrictions are aimed at giving the employer a reasonable amount of time to ring-fence their business and protect themselves.

However, Mr Javid seems determined to take action to “break down any barriers that are curbing innovation and entrepreneurship” and is backed by Emma Jones of Enterprise Nation, which is partnering with the Government to support entrepreneurship. She said she welcomed the consultation, as entrepreneurial individuals need to be able to ease out of employment into self-employment and employment contracts should reflect this ability.