'Any changes that reduce an employer's ability to protect its commercially sensitive information would be a backwards step'
The Ai Group is warning that it would be a "backward step" for the government to impose constraints on non-compete clauses in employment contracts.
The national employer association, which represents more than 60,000 businesses in Australia, issued the warning in its submission to the Treasury's inquiry on non-compete clauses and other restraints.
"Our position is that non-compete and other restraint clauses are an important contracting device for both employers and employees," said Innes Willox, Ai Group chief executive, in a statement.
A non-compete clause is a type of restraint of trade clause that prohibit workers from joining a competitor or establishing a competing business. But there have been growing concerns that these clauses are "adversely impacting workers, other businesses, and broader economic outcomes — through reduced wages growth, job mobility, and access to skilled workers."
The Ai Group pointed out that existing Australian laws only allow the enforcement of such clauses when they are "reasonable and necessary the legitimate interest of an employer."
"Any changes that reduce an employer's ability to protect its confidential and commercially sensitive information would be a backwards step," Willox said.
"There are very significant risks that misguided or heavy-handed efforts to constrain the use of such clauses will give rise to a raft of unintended consequences for industry, for employees, and for our economy."
Why non-compete clauses make sense
In its submission, the Ai Group argued that these restraint of trade clauses make employers more confident in investing in their staff and innovation.
"The fact that a clause is in place reduces risks for an employer and in so doing encourages the sharing of valuable information with their employees who are subject to a restraint," Willox said.
"For example, when a non-compete clause is in place, it facilitates the employer sharing with the employee information such as the terms of agreements with clients; strategic plans and marketing strategies; and commercially sensitive information, including trade secrets."
Non-compete clauses also encourage employers to invest in employee training, the association added.
"We know many employers who devote significant resources to training their staff even though they know their competitors will consequently seek to poach those workers, rather than providing comparable training themselves. Employers need reasonable restraints through contracts to enable them to make these investments," Willox said.
According to the Ai Group, the government needs to look into the "entrenched productivity problem" instead.
"This is the biggest barrier to delivering improved wages and a more prosperous country. The government needs to urgently turn this around rather than considering further regulation with the obvious potential to stifle future productivity improvements," Willox said.
In Australia, 49.6% of businesses said they use some kind of restraint clause, which also includes employees in non-executive roles, according to the Statistics Bureau.
The Australian government has been undertaking a review on non-compete and related clauses in employment contracts since 2023.
