Is this the end for non-compete and non-solicit provisions in employment agreements?

Could non-compete, non-solicit and non-disclosure provisions in employment contracts soon be a thing of the past?

The Hon. Dr Andrew Leigh MP, Assistant Minister for Competition, Charities and Treasury, and Assistant Minister for Employment, officially launched a public consultation process on 4 April 2024. The consultation process aims to determine whether additional regulation is required in relation to the ongoing use of non-compete and other restrictive covenants (including non-solicit, non-disclosure, no-poaching, and wage-fixing agreements).

The consultation comes in the wake of the formation of a Competition Taskforce within Treasury, which was tasked with reviewing Australia’s competition laws to ensure they remain fit for purpose. This initiative is driven by emerging research that anecdotally suggests that post-employment restraints hamper job mobility and stifle innovation.

Public consultation and issues paper

The formal public consultation process will run between 4 April 2024 and 31 May 2024. The feedback received during the process could significantly influence the government’s decision to legislate in this area (if at all).

The Competition Taskforce has also published a key Issues Paper. The Issues Paper invites parties to provide feedback on several questions, including whether the common law restraint of trade doctrine strikes an appropriate balance between the interests of businesses, workers and the wider community and whether the policy approaches of other countries (for example, the United States, United Kingdom, Austria, Finland, Germany, Netherlands and Spain) would also be suitable in the Australian context.

Many organisations would consider non-compete and non-solicit post-employment restraints to be crucial protective measures to safeguard their legitimate business interests. These restraints are often the only effective means to prevent the misuse of proprietary information, maintain customer relationships, and protect the investment made in employee training and development.

Restrictive covenant reforms

In this context, the most likely outcomes of the reforms could include:

• Complete ban: A total prohibition on the use of non-compete or similar clauses in employment agreements.
• Compensation: A requirement for employers to compensate employees during the period of a non-compete or other similar clause.
• Income threshold: Restraints will only be enforceable for employees earning above a particular threshold (for example, the ‘High Income Threshold’ – currently $167,500).
• Restrictions on duration: Employers may only be permitted to include post-employment restrictions for limited time durations (e.g., 3 or 6 months).

Any interested parties are able to make a submission here.

This will certainly be an interesting space to monitor closely, as any changes to the law in relation to non-competes and other restrictive covenants would be a drastic change with significant ramifications for both employers and employees.

Shivchand Jhinku is a partner at Herbert Smith Freehills in Sydney, specialising in post-employment litigation and whistleblowing issues. Michael Absell is a solicitor specialising in employment, industrial relations, and safety at Herbert Smith Freehills in Sydney.