Latest Insights on Non-Compete and Non-Solicit Provisions in Australia: Public Consultation Wrap-Up

Further to our previous update on this topic, public consultation to assess the need for additional regulation on the use of non-compete and other restrictive covenants (including non-solicit, non-disclosure, no-poaching, and wage-fixing agreements) has now concluded.

During the consultation period, there were 47 submissions that were lodged, 3 of which were provided on a confidential basis. The publicly available submissions came from a diverse range of interests, including unions, employers, employer groups and individuals.

A range of opinions were expressed, ranging from maintaining the status quo in relation to non-compete and other restrictive covenants, through to banning them entirely. Within the opinions expressed, a number of expected trends emerged.

Herbert Smith Freehills’ Submission

Herbert Smith Freehills’ (HSF) submission emphasised that the common law position, which has evolved over time, aptly addresses the complexities around non-compete clauses and other restraint of trade provisions.  HSF urged the government to approach legislative reform with caution, due to the complexity and potential risk of unintended consequences, in this area of law.

Should the Government decide to proceed with legislative reform, HSF outlined a number of potential mechanisms for this reform, such as high-income thresholds, compensation requirements, duration limits and a potential requirement for employees to receive independent legal advice before a restraint clause can be validly included in an employment agreement. However, HSF emphasised in its submission that these mechanisms are not a complete solution and that the current common law doctrine, which has been refined over time by the Courts, already provides robust protection for businesses, workers, and the community.

HSF has established itself as a thought leader in this area, with a number of these comments being echoed in the submissions of other entities.

Key themes across the submissions

Some of the key themes that emerged from the submissions included:

1. The current evidence available is insufficient to proceed with the suggested changes to non-compete clauses.
   • The Business Council of Australia’s submission recommended that “Treasury should commission independent and rigorous research into the prevalence and behaviour effects of non-compete clauses and post-employment restraints to inform policy consideration and reform proposals. It is vital that policy reforms are evidence-based.”
   • The Australian Industry Group’s submission stated that “without adequate and relevant empirical evidence, government cannot justify making policy changes constraining the use of these clauses given the acknowledged adverse effect on business.”
2. The majority of businesses that provided submissions were in favour of retaining non-compete clauses, citing the need to protect trade secrets.
   • The Managed Fund Association  stated “Importantly, non-compete clauses foster the free flow of information and training within a firm that results in the innovation that is so critical to the competitive process in the alternative asset management industry.”
   • Australian Industry Group stated that by introducing a ban on non-compete causes, this may “shift litigation to other areas such as intellectual property and trade secrets as businesses inevitable seek to protect their legitimate business interests”.
3. The trend among unions and individuals was to suggest that non-compete clauses should be only applied to employees who meet or exceed the high-income threshold and that the duration of the post-employment restrictions should be limited (e.g. to 3 – 6 months).
   • A submission made by the Australian Human Resources Institute noted that non-compete clauses may be effective with high income earners, as it can assist in protecting intellectual property and prevent talent poaching among high income earners with specialised skills. However, lower-income earners may not fully understand these clauses and, without seeking legal advice, might agree to terms that disadvantage them in the job market.
   • A submission made by Dr Iain Ross, the Former President of the Fair Work Commission, and Board Member of the Reserve Bank of Australia, and Prof Andrew Stewart of University of Adelaide and Queensland University of Technology, proposed that “the use of non-competes should be prohibited for workers earning below an income threshold. Such provisions should not merely be declared void but attract penalties for inclusion in relevant contracts.” Additionally, it was proposed that for higher-paid workers, non-competes should be limited to six months, with employers providing compensation during the restraint period.
4. There is a role for improved education and guidance for employers and employees regarding the use of non-compete clauses.
   • The Australian Workforce Compliance Council recommended “Awareness campaigns and training programs should be conducted to educate employers and employees about the implications of non-compete clauses and other worker restraints, promoting fair and equitable employment practices. This can help foster a better understanding of fair employment practices and encourage compliance with relevant regulations”.
   • The Australian Chamber of Commerce and Industry recommended Treasury engage in educational initiatives to enhance the understanding of both workers and employers. This approach would address two key issues. Firstly, it would educate workers about the potential unreasonableness and unenforceability of certain restraint clauses, and secondly, it would assist employers in recognising and avoiding including such unreasonable clauses in future contracts.

Where to from here?

There is currently no timeline for next steps, however, we expect that there will not be significant movement in this space until after the next election. We will be closely monitoring any updates and developments.

As stated in our previous article, if changes to the law were to occur, we expect employers may need to consider the use of alternative ‘restraint’ type mechanisms such as extending notice periods and/or utilising ‘gardening leave’ provisions on a more regular basis.

If you have any questions or would like to discuss how these potential changes may impact your organisation, please get in touch.