Last week, Labor unveiled a new plan to ban non-compete clauses for low and middle income workers. The ban would apply to workers earning less than the high-income threshold in the Fair Work Act, which is currently $175,000.
The Government will also close loopholes in competition law that currently allow businesses to:
- Apply caps to an employee’s pay and conditions without the knowledge and agreement of the employee
- Apply a ‘no-poach’ agreement to block employees from being hired by competitors
In a joint media release on Tuesday, Jim Chalmers, Murray Watt and Andrew Leigh said the change will help Australian workers switch to better, higher-paying jobs – and, in theory, start their own enterprises.
One of the motivators behind banning non-compete clauses was a recent Competition Review by the Treasury. The review found evidence that non-compete clauses are increasingly being used inappropriately, including to restrain employees and/or restrict wages. This included many cases where workers were vulnerable or paid minimum wage.
Why are non-compete clauses good for small businesses?
Non-compete clauses prevent employees from taking IP to a competitor. For businesses that rely on close relationships between clients and employees, non-compete clauses can be crucial, explains Brett Atkinson of Dowson Turco Lawyers.
“Non-compete clauses are helpful to protect the livelihood of small business owners like hairdressing salons, beauticians or specialist areas where you have built up a reputation and relationship with customers among your community,” Atkinson explains.
Non-compete clauses are also a security blanket for those wishing to purchase a business, says Atkinson. For instance, someone buying a venture might want assurance that the previous owner won’t start a competitor business in the same area with the sale funds.
Finally, Atkinson adds, non-compete clauses can also protect a business from a breakdown in an employer/employee relationship. In the extreme case that an employee may want to deliberately harm their previous employer’s business and reputation by competing directly with them, a non-compete clause can act as a safeguard.
Will there be protections against negative consequences for businesses?
In Budget Paper No. 1, the Government said it will consult on possible exemptions, penalties, and transition arrangements associated with a non-compete clause ban. So it’s likely there will be some protections in place to avoid negative consequences for businesses.
Atkinson believes that protections should be afforded to certain small businesses, but not for low income roles and certain sectors such as aged care or disability support.
“[There should also be] consideration for specialised fields with certain business practices or IP, or where there are limited opportunities,” he added. “Small businesses should have the right to protect their brand and reputation. [There should certainly be] consideration for the limitation period or time or the area – that should be negotiable.”
In the meantime, ISB will be watching for further details around the measure.
