Andy Burnham has pledged to crack down on non-compete clauses in employment contracts, which he said were a “drag on innovation”.
Speaking at an innovation summit in Manchester on Friday, the prime minister said the government was determined to tackle non-competes, which are commonly used by technology and financial services companies to restrict employees’ ability to work for or set up a rival.
“We will legislate to ensure non-compete clauses will no longer be a barrier to hiring for our most promising start-ups and scaling firms,” he said, adding that workers were “often held back and unpaid during the time they have to sit on the sidelines”.
Comparing the move with a 1990s court decision that overhauled football transfer rules, he added: “Call it, if you like, the Bosman ruling for the innovation sector, but I think it is much needed and much overdue.”
The crackdown could also affect restrictive notice periods for employees.
One senior Whitehall figure described the announcement as a “big win for pro-business forces in the government”.
Burnham was speaking alongside business secretary Jonathan Reynolds at the summit, organised by former Labour prime minister Gordon Brown.
Brown praised the current government for its focus on planning, housing and infrastructure as ways to boost growth. But he added: “I think there has been an element that has been underplayed and overlooked and that is the power of innovation to drive the future of the economy.”
Even the best thinkers, he said, had “blind spots”.
The founders of some leading UK tech start-ups last month called on ministers to limit the use of non-compete clauses and extended notice periods, arguing they hampered British businesses’ ability to compete with Silicon Valley.
Their letter was signed by more than 20 founders, executives and investors in British start-ups such as Recursive Superintelligence, Synthesia and Fuse Energy.
The fight for tech talent has been a particularly controversial issue after some Google DeepMind employees left the company’s London base to launch rival AI businesses.
About 5mn employees in Britain work under a contract that contains a non-compete clause — typically with a duration of about six months.
Many companies, particularly in financial services, have long used non-competes to protect their talent and intellectual property.
A review into non-competes was launched last year by Sir Keir Starmer, setting out options ranging from an outright ban to placing a time limit — for example of three months — on the arrangements.
Enterprise Britain, a business lobby group, found in a recent survey that 87 per cent of “scale-up leaders” regarded non-compete clauses as a hurdle when hiring.
Brent Hoberman, co-chair of Enterprise Britain, said: “Non-compete clauses have held back Britain’s fastest-growing firms from hiring, while forcing workers to miss out on job opportunities or spend months without pay.
“Banning non-competes is in part what made Silicon Valley what it is today — and it’s the reason we’ve been calling for the same action to be taken here.”
But scrapping non-competes would not be popular among all business leaders: the CBI business lobby group has said it has not seen evidence that they are a significant drag on innovation.