Labor moves to kill non-compete clauses in productivity push

The Labor government has put forward a draft bill to ban non-compete clauses for employees whose earnings are equal to or less than the high-income threshold, in a bid to promote productivity and competition in the broader economy.

The bill also bans the use of co-worker non-solicitation clauses for all employees, irrespective of income.

The current law exists to protect 'legitimate business interest' of employers, resulting in the need to restrain a worker from moving to, or starting, a competing business to protect confidential information or client relationships of the former employer.

Treasury highlighted, however, the enforceability of the non-compete clauses often remains untested due to disproportionate costs of litigation, in turn creating a 'chilling effect', dampening an employee's ability to move jobs.

"The lack of clarity about the enforceability of these terms means many employees stay in unfavourable jobs because leaving may result in court action or unemployment if they breach their restraint of trade term," Treasury said.

"This affects the ability of Australian employees to move to better-paying and more productive jobs, or to negotiate better wages and conditions in their current role. Limiting job mobility in this way negatively affects the growth of wages, productivity and competition in the broader economy."

Treasury noted the new amendments will support the use of more proportionate and targeted options to protect legitimate business interests.

"By prohibiting non-compete terms for low-and middle-income employees, the reforms will provide greater certainty for employees whose wages and mobility are disproportionately impacted by these restraints and help address the adverse effects that these terms can have on wages, competition and innovation," Treasury said.

Under the new laws, a civil penalty will apply on employers who enter in a contract that prohibit post-employment restraint of trade.

The government is also amending its Competition and Consumer Act to prohibit businesses from making and giving effect to no-poach agreements and wage-fixing agreements. This forms part of its broader competition policy reforms aimed at boosting wages, job mobility and productivity, and aligns with the commitment to promoting labour mobility.

Treasury is taking submissions until October 2.