Non-compete clauses and worker restraints under review

A new issues paper from Treasury’s Competition Review questions whether non-competes and other restraints are limiting job opportunities and movement.

A recent Australian Bureau of Statistics (ABS) survey found that 46.9% of businesses surveyed used some kind of restraint clause, including for workers in non-executive roles. The survey also found 20.8% of businesses use non-compete clauses for at least some of their staff and 68.2% for more than three-quarters of their employees.

Over the last 30 years, Australia has seen a decline in job mobility. Australia is not alone in this and other advanced economies have experienced the same issue. While restraint clauses are not the only factor contributing to the decline – an ageing population and a rise in post-pandemic market concentration in some industries has also contributed, it is specifically the role of restraints that is the focus of the Competition Review issues paper (submissions close 31 May 2024).

From an economic perspective, declining job mobility impacts wage growth and innovation as restraints prevent access to skilled workers within the economy. Productivity is a key concern as Australia’s productivity has declined in the last 20 years.

The review states that, “The direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentivises workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.”

For business however, this is the point – restricting the knowledge developed by a worker during their employment from benefiting a competitor, limiting the likelihood of a ‘mass exodus’ of key workers from the business to a competitor, preventing clients from employing key workers, and protecting the value of the business by preventing employees from walking away with customers that were hard won, at a cost, by the business.

However, the impact of restraints appears to be a psychological deterrent given that most are not contested. Of the 115 matters relating to restraints of trade between 2020 and 2023 dealt with by Legal Aid NSW, only one business commenced proceedings in court against a former worker. And, a further study indicates that where employers seek legal redress in the courts, they are more likely than not to fail.

The international trend is to either ban restraints for workers under a certain income level and time limit restraints for higher paid workers, or to limit the duration of restraints generally but specify a level of compensation to the worker for the restraint period.

Non-compete clausesprevent workers from joining a competitor or starting a new business in competition with their current employer for a period of time.
Non-solicitation clausesprevent workers from soliciting former customers and co-workers.
Non-disclosure clausesprevent workers from disclosing confidential information relating to their employment.

Note: The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

Schedule a consultation with a business expert.

Get expert advice

At Latter Kennedy, we do more than just financial services and tax returns. Schedule an obligation-free consultation and let us help you to get back on track to achieving your accounting, business and taxation goals.

Schedule a Consultation
lk images 87
View all Insights
  • pexels andrey belavin 71368084 8412268 e1738826367917

    Fuel Tax Credits Rate Change – 3 February 2025

    Fuel Tax Credit rates can change regularly. It is important that you ensure you are using the correct rates when calculating your fuel tax credits dependant on the date the fuel was purchased. Current fuel tax credit rates are as follows: Rates for fuel acquired from 3 February 2025 to 30 June 2025 Eligible fuel typeUsed in heavy vehicles for…

    Taxation
  • Tax deduction denied for signature basketball shoe R&D

    The Federal Court has denied a sports company’s appeal to claim research & development incentives for the creation of an Australian signature basketball shoe. The Movie Air highlighted the importance of the signature Air Jordan shoe to Nike. While expected to sell around $3 million worth of shoes by its fourth year, the signature shoe eclipsed expectations raking in $126…

    Taxation
  • Phasing out cheques

    The Government has announced a transition plan to phase out the use of cheques. Under the plan, cheques will stop being issued by 30 June 2028 and stop being accepted on 30 September 2029. The use of cheques has declined dramatically over the last 10 years, declining by around 90%. In response, banks have stopped issuing chequebooks to new customers.…

    General News
View all Insights