Worker non-compete clauses and other restraints

Read our submission here.

Women’s Legal Services Australia (WLSA) welcomes the Competition Review’s consideration of non-compete clauses and other restraints used in employment and other contracts that restrict workers from shifting to better-paying jobs. In our experience these types of clauses are over-used, regularly misused, and have a significant impact on workers. These clauses and other restraints go further than what courts will usually consider to be enforceable to protect the legitimate business interests of the restrainer.

This submission responds to the Competition Review’s Issues Paper and discussion questions on the following topics:

  • Impacts of restraint of trade clauses on workers; and
  • Restraints on workers during employment.

In preparing this submission, Women’s Legal Services engaged in a survey of the clauses that appear in our clients’ contracts. The outcomes of this survey demonstrate that non-compete clauses and other restraints are excessive in every aspect – length, geographic location, and scope of activities restrained – for workers in the relevant job type, salary, seniority, and industry.

Non-compete clauses and other restraints act ‘in terrorem’ to create fear in the hope of compelling our clients into compliance. This fear persists in our clients despite our advice that the clauses would not be enforceable by the courts. In our experience, it is simple and easy for employers to write a legal letter on termination of a worker reminding them of the operation of these clauses, or setting out concerns regarding possible breaches, and this creates further fear in our clients and restricts their ability to shift to better-paying jobs.

We strongly recommend there should be a strict ban on non-compete clauses and other restraints on workers that prevent them from shifting to better-paid jobs. We also recommend this include a ban on any ‘work arounds’ to the ban on non-compete clauses, such as imposing excessively long notice periods on workers and restrictions on workers having multiple employers. We suggest these bans are implemented through a staged approach, like the approach adopted for the new prohibition on pay secrecy clauses in contracts of employment. This will lead to better outcomes for women in the workforce.

There are existing legal principles that impose obligations on employees to protect confidential information and trade secrets. Employees also have obligations under the Corporations Act 2001 (Cth). These are sufficient to achieve any legitimate policy intent behind non-compete clauses and other restraints.

Key recommendations:

  • The Fair Work Act 2009 (Cth) should be amended to impose a strict ban non-compete and other restraint of trade clauses. The use of such clauses should be unlawful and any contract that contains such terms should have no effect.

There should be a civil remedy provision which allows for employers to be fined if they breach the ban, and this should be drafted similarly to the pay secrecy provisions in the Fair Work Act in section 333C and 333D.