The federal government has proposed a ban on non-compete clauses for most employees, including hairdressers, construction workers and childcare centre staff, in a reform designed to free up people to seek better jobs.
The proposal has triggered widespread criticism from business groups over claims it is heavy-handed, and will cripple their enterprises.
What is a non-compete agreement?
Non-compete agreements are contracts that prohibit an employee from competing against that company for a certain timeframe and in a specified geographic location after they leave.
While they are routinely used to prevent high-level employees or executives from using confidential information or relationships to harm their former employee, the clauses now regularly appear in contracts of workers on modest incomes who do not possess trade secrets.
Here are three examples of how non-compete clauses have been used to threaten workers:
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A nurse employed by a community aged care provider in a regional area was required to sign a contract prohibiting her from working post-employment in an area of up to 250km from her current workplace, according to the Australian Nursing and Midwifery Federation.
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A chef was told by a former employer he would need to repay $45,000 in incentive payments after he started working for another restaurant, according to the Employment Rights Legal Service.
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A hairdresser, on a sponsored visa with an annual base salary of less than $41,000, was subject to legal proceedings after switching employers. Her former employer sought to recoup $27,000.
Who is affected by these clauses?
Seri Feldman-Gubbay, a senior solicitor at the Redfern Legal Centre, says it’s concerning how often she sees such clauses.
“I advise low-income employees, so these are people that, generally speaking, don’t hold confidential business information or trade secrets,” says Feldman-Gubbay.
“The clauses can be an underhanded way to try to force someone into remaining in employment, as opposed to, I don’t know, giving someone a pay rise.”
Government figures suggest more than three million Australian workers are covered by such contracts.
While the clauses are used in all industries, they are most common in what the government refers to as “knowledge and relationship-focused” sectors including finance, real estate, professional services and healthcare.
What is covered in a non-compete clause?
These clauses are also increasingly broad in scope.
One clause, seen by Guardian Australia, in a contract for a part-time role in the private education sector in Sydney says the employee must not engage in any role in competition with the employer “within any geographic area in or around Australia” for two years after they leave.
While such a clause is almost certainly unenforceable, an employee subject to it may adhere out of fear.
“The reality is most people comply with what’s in their contract; they don’t want to deal with the risk of someone taking them to court even if it’s not enforceable,” says Feldman-Gubbay.
“In a lot of cases it will be fair to say you can’t solicit our clients, but that’s different from saying you can’t work in the role you are qualified to perform to earn an income.”
When are the reforms due to take effect?
The reforms are scheduled to take effect from 2027, with the ban on non-compete clauses applying to workers earning less than the high‑income threshold, currently $175,000.
The government is also seeking to prevent employers from using “no‑poach” agreements to block staff from being hired by competitors.
What will the reforms mean for workers?
Feldman-Gubbay says the reforms would empower workers.
“Anyone who earns less than the high-income threshold will know, point blank, it’s not enforceable, and so the threat won’t hold any weight,” she says.
Business groups have tended to take a dim view of the proposed reforms.
Cynthia Elachi, special counsel at Clayton Utz, says the reforms should give workers greater bargaining power to negotiate higher wages and more favourable conditions of employment generally.
“This would, for the most part, promote competition,” says Elachi.
She says employers will need to ensure their employment agreements include adequate protections of confidential information as they will no longer be able to rely on non-compete restraints if the ban is imposed.
Non-compete clauses can have a “chilling” effect on the mobility of workers, according to university researchers, which is a particular problem for workers who would benefit from a higher-paying job in an economy marked by fast-rising living costs.
How has business reacted?
The Australian Chamber of Commerce and Industry called the government measure “heavy-handed” while the Business Council of Australia told the ABC it would favour “education rather than regulation” to improve contracts.
The Australian Hairdressing Council told the SMH the reforms could be “crippling” to salons.
Guardian Australia contacted several industry groups, including the Australian Hairdressing Council and Australian Retailers Association, for comment.
The government has said it will consult further with industry before introducing the legislation.