Proposed non-compete ban could backfire on workers, firm warns

According to the Labor government, more than 3 million Australian workers are currently covered by non-compete clauses, including childcare workers, construction workers, and hairdressers – which they believe “drags down wages”.

“Research suggests the reforms could lift the wages of affected workers by up to 4 per cent, or about $2,500 per year for a worker on median wages,” said Treasurer Jim Chalmers during his budget address.

Attwood Marshall Lawyers, however, has cautioned the federal government about their proposal – claiming the impact could create more problems than it solves, especially for Australian small and medium-sized businesses (SMBs).

Charles Lethbridge, a commercial litigation partner at Attwood Marshall Lawyers, believes that the prevalence of non-competes is necessary for a number of business outcomes.

“Non-compete clauses exist for good reason – they help protect client relationships, sensitive commercial information, and business goodwill,” said Lethbridge.

“If removed without a proper alternative, employers risk having staff walk away with valuable contacts and trade secrets.”

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According to Lethbridge, further consultation should be undertaken by the government with business and legal experts to garner a better perspective of the risks this proposal poses towards Aussie businesses.

“Removing these protections could devalue goodwill in professional practices, impacting valuations and succession plans. We encourage the government to consult further with legal and business experts to ensure the reforms don’t unintentionally harm the very workers and businesses they aim to support,” said Lethbridge.

New Employment and Workplace Relations Minister Amanda Rishworth will be tasked with processing the policy proposal, taking over from Murray Watt, who has been shifted to the environment portfolio.

“... Removing non-compete clauses has been a real commitment that our government has given that is holding back people being able to move to another job, and that is not fair for so many people. So, there’s a lot of work to be done ...” said Rishworth in a recent interview.

With the move to ban non-compete clauses being Labor’s marquee employment policy proposal throughout the election campaign, it will be interesting to see how quickly the policy is implemented.

As previously reported by HR Leader, Michael Byrnes, employment law partner from Sydney-based firm Swaab, claimed that the policy could be a wake-up call for employers who orchestrate non-competes as a “game of bluff”.

“To some extent, employers who purport to bind such employees with non-compete clauses have been playing a game of bluff, hoping to achieve enforcement through threats that could never realistically be carried through to conclusion in a court,” he said.

“The employer knows that but includes the restraint in the employment contract and then, after the employment ends, uses the contractual restraints as the basis for a letter of demand.”

“While the applicable legal principles would support the employee giving the letter short shrift (given a court would probably not ultimately enforce the restraint), employees nevertheless get concerned and either defer joining the competitor or cancel plans to do so altogether. Restraints that would likely be unenforceable end up having a chilling effect. This reform brings that to an end.”