If re-elected, the Current Labor Federal Government will ban non-compete clauses for low and middle-income workers. It will also consult about non-solicitation clauses for clients and co-workers, as well as non-compete clauses for high income workers.
What are non-compete clauses?
Non-compete clauses seek to prevent or restrict workers from moving to a competing employer or from starting or operating a competing business. They generally apply with respect to certain geographic locations and for a certain period. They can be distinguished from non-solicitation of client and staff clauses, which generally only apply for a certain period.
Why the change?
Budget paper No 1 says:
"The Government's Competition Review found compelling evidence that non-compete clauses are now a common and growing feature of Australia's labour market and are suppressing the wages of many workers, including many lower paid and vulnerable workers. The review found that the clauses are often being used indiscriminately across income levels and occupations, including for childcare workers, construction workers and hairdressers."
The Budget paper claims that banning the unreasonable use of non-compete clauses could increase annual GDP by $5 billion dollars. It is thought that freeing up workers to move to higher paying jobs, or start their own business will boost wages and lift productivity. It is estimated the reforms could lift wages by between 2 to 4%, or up to $2,500 per year, for affected workers on median wages.
What is proposed?
From 2027, it is proposed to ban non-compete clauses that apply to workers earning less than the high income threshold, currently $175,000. The Government will consult on policy details, including exemptions, penalties and transitional arrangements. Importantly, it will also consult further on non-solicitation clauses for clients and co-workers and non-compete clauses for high income earners. The references to "workers" in the Budget papers begs the question whether the reforms will apply not only to employees but also independent contractors.
Conclusion
Non-compete clauses are generally difficult to enforce, as demonstrated by the recent decision of 2nd Chapter Pty Ltd v Sealey (No 2) [2024] VSC 672. Their use has declined over the years, with many employers instead relying on non-solicitation of client and staff clauses, which are easier to enforce. One of the reasons for this is that non-solicitation clauses seek to protect the valuable relationships which employees develop with clients and staff as a result of the employment. The possibility of the Government restricting the use of non-solicitation of client or staff clauses is a concern for employers, who will no doubt voice that concern through employer associations.
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