Restricting the restraints: The government’s latest proposal

The Federal Government’s budget announcement on Tuesday included a significant workplace proposal to ban post-employment non-competition restrictions for some employees. A restraint of trade providing for non-competition restrictions are clauses that purport to limit competition with a previous employer for a period of time, and within a specified geographical location, after an employee has left an employer. These are commonly included in employment agreements. Other forms of restraint of trade include non-solicitation obligations (preventing solicitation of clients/customers and prospective clients/customers) and non-poaching obligations (preventing poaching of staff).

While substantive details have not been released, what we do know is that the proposal will impact those employees earning less than the high-income threshold which is currently $175,000 per annum. The changes may be introduced through amendments to the Fair Work Act 2009 (Cth) with an anticipated effective date of 2027 operating prospectively.

The government’s rationale for this approach is that employers have applied non-competition restrictions to restrict lower-paid workers (using the oft-cited example of hairdressers).

The proposed reforms aim to enhance labour market mobility, increase wages, and promote competition particularly in some industries in which the use of employment restraints are more commonplace such as financial services, and construction.

The government plans to consult on policy details (once available), including possible exemptions, penalties, and transition arrangements. The government has also signalled that these reforms may be extended to higher-income earners and to other types of restraint obligations including the obligation for a person not to take other employees with them when they move to a competitor or start a new competitive business and non-solicitation obligations.

Practical impact

For most businesses, these proposed changes are unlikely to have an immediate impact. In practice, non-compete restraints have historically been the most difficult to enforce, particularly against low and middle-income employees. Employers are generally aware of this and typically focus their efforts on enforcing restraints against high-income earners.

If the proposed ban was to be extended to other types of restraints, the impact on businesses could be more significant particularly if there was no limitation on the ability for a person leaving employment to take key clients, suppliers and other employees.

Next steps

At this stage, the proposed non-compete ban remains a policy announcement, with further details around the implementation and scope of any proposed changes to come. Please get in touch with the Gadens Workplace Advisory and Disputes team for updates or more information.

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Authored by:
George Haros, Partner
William Marshall, Partner
Vishmitha De Alwis, Lawyer