Federal Government set to scrap non-compete clauses for millions of workers

In last night’s budget announcement, Treasurer Jim Chalmers announced that if the Albanese Government wins the upcoming Federal Election, it will ban non-compete clauses for workers earning below the high-income threshold in the Fair Work Act 2009 (currently $175,000 per year excluding superannuation), commencing from 2027, applying prospectively.

This move follows union campaigns seeking to ban non-compete clauses.

The Government will also seek to ‘close loopholes’ in competition law that currently allow businesses to:

• Fix wages by making anti-competitive arrangements that cap workers’ pay and conditions, without the knowledge and agreement of affected workers; and
• Use ‘no-poach’ agreements to block staff from being hired by competitors, which will likely be another blow for the labour hire and recruitment industry (see our previous article here).

The Government has also indicated that if they win the upcoming Federal Election, it will consult on policy details, including exemptions, penalties, and transition arrangements and will consider and consult further on non-solicitation clauses for clients and co-workers and non-compete clauses for high-income workers.

What are non-compete clauses?

Non-compete clauses are typically contained in employment contracts and seek to prevent or restrict workers from moving (or attempting to move) to a competing employer, or from starting or operating a competing business, with a specific geographic location and for a certain duration.

The Government estimates that more than 3 million Australians are captured by non-compete clauses, including childcare workers, construction workers and hairdressers, and that the ban ‘could boost wages by up to 4%’.

Generally speaking, the Courts consider that post employment restraints (particularly non-compete clauses) are contrary to public interest and void, unless they are proven to be reasonable to protect the legitimate interest of a party seeking to enforce it. However, such restraints may be enforceable in circumstances where the restraint is very carefully drafted, bearing in mind the employee’s seniority and access to confidential information in their employment.

What does this mean for employers?

This proposed ban will no doubt lead to even more complexities and hurdles for employers to protect their legitimate business interests, and result in more difficult renegotiations of employment contracts and litigation.

At this time, non-compete clauses are not statutorily banned and can continue to be deployed by employers to restrict or act as a disincentive for employees working for a competitor and potentially diverting business away from, or causing damage, to their former employer. However, employers should take caution with the use of such clauses given the limits on their enforceability and likely ban and seek advice where appropriate.

HR Legal is here to assist. Please don’t hesitate to contact us if you would like further advice about the implications of this proposed ban.

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This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.