Law Council of Australia

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Worker non-compete clauses and other restraints

The Law Council of Australia provided a submission to the Competition Review Taskforce in response to the April 2024 Issues Paper Non-competes and other restraints: understanding the impacts on jobs, business and productivity (Issues Paper).

The Law Council recognises that, in certain circumstances, non-compete and other restraint clauses are necessary to support the legitimate interests of employers in protecting their investment in human resources, intellectual property and confidential information, and client connections.

However, in practice, under the current common law, the restraint of trade doctrine typically favours employers due to an inequality in bargaining power when clauses are negotiated and the uncertainty, cost and time issues of litigation when a dispute arises. As a result, the Law Council generally accepts that non-compete clauses have become overly prevalent in Australian employment contracts – particularly in relation to lower-income workers.

Lower-income workers generally have less bargaining power to negotiate or remove a non-compete clause, less capacity to absorb a loss of income between jobs and fewer resources to resolve a dispute if they leave. By and large, lower-income workers are also less likely to have access to information or connections reasonably requiring protection. Reduced job mobility amongst lower income workers serves neither the interests of individual workers nor the broader public interest.

Therefore, the Law Council considers that the Australian Government should consider legislating additional limitations on the use of non-compete clauses. Such protections could include:

  1. legislating an income threshold below which non-compete clauses are generally not permitted;
  2. requiring employers seeking to include a non-compete clause in a contract to identify the ‘legitimate interest’ that they are seeking to protect;
  3. requiring employers to provide reasonable compensation when seeking to enforce non-compete clauses; and
  4. limiting the maximum length of the non-compete clauses or otherwise limiting cascading clauses.

However, the Law Council considers that several of the other types of restraints discussed in the Issues Paper, including non-solicitation clauses and non-disclosure clauses, play a crucial role in protecting the viability of businesses. Such clauses are less in need of regulation at this time.

Read the full submission below.

Last Updated on 24/07/2024

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