Labor Government Proposes ‘Blanket Ban’ for Non-Compete Clauses for Lower Income Earners

In a recent development, the Albanese Labor Government has proposed the introduction of legislation which will create a ‘blanket ban’ on non-compete clauses in employment contracts for workers earning less than the high-income threshold, currently being $175,000.00 (indexed annually) (the Proposed Ban).

Non-Compete Clauses

Non-compete clauses are clauses found in an employment contract which impose restrictions on an employee’s ability to commence employment with a competitor of the former employer, either in the same or similar industry for an ordinarily prescribed a period of time and with a prescribed geographical. Non-compete clauses have typically been justified by employers to protect their legitimate business interests, including trade secrets and client relationships.

Reasons for the Proposed Ban

The Proposed Ban follows findings from a recent study by the e61 Institute (the Study) which found that the increased use of non-compete clauses in employment agreements, particularly for lower income earners, has contributed to low wage growth, reduced bargaining power and impeded job mobility. The Study also found that in many instances these non-compete clauses were too onerous on employees and were ultimately unnecessary or disproportionate to protect any legitimate interests of the business. Further, it was found that almost 1 in 5 Australians were subject to non-compete clauses in their employment contracts.

The Labor Government anticipates that workers in the hairdressing, childcare and construction industries will benefit from the Proposed Ban. However, small business owners have expressed their concerns with the Proposed Ban, stating that the use of non-compete clauses provides an important safety net to small business owners to retain clients and that the removal of non-compete clauses disincentivises small businesses to hire and invest in staff.

Key Takeaways

Should the Albanese Government win the Federal Election it will introduce legislation to enforce this Proposed Ban. Employers may be forced to consider these upcoming changes when drafting employment agreements and considering the enforceability of non-compete clauses against employees if Labor is re-elected.

If you have any questions about non-compete clauses and how they may impact you as an employer or employee, please do not hesitate to contact Nick Stevens, Josh Hoggett, Evelyn Rivera or Ayla Hutchison.