Australia Proposes to Ban Non-compete Clauses for Most Workers by 2027

HR Policy Global's view: The government has proposed banning non-compete clauses for most employees to enhance job mobility and competition. This change is set to boost competition in sectors like finance, real estate, and healthcare, where restrictive practices have impacted middle-income earners. However, with a Federal Election now scheduled for May 3rd, a change in government could potentially reverse this and many other proposed labour regulations. 

Globally, there's a growing debate on non-compete clauses with some jurisdictions advocating for stricter regulation or outright bans due to concerns about stifling job mobility and competition, while others emphasize their role in protecting legitimate business interests. In the US, we have seen continued action in the states and expect a federal law in the next year or two. 

Originally for high-level employees, these clauses now appear in the contracts of workers with modest incomes and are prevalent in sectors characterized by their reliance on knowledge and relationships. During a period marked by cost-of-living challenges and stagnant wage growth, the Australian government worries that such clauses may hinder middle-income earners from pursuing higher-paying opportunities.  Employees fear legal repercussions should they breach the non-compete provisions in their contracts, even where those clauses are unenforceable. 

Scheduled for 2027, the ban will apply to workers earning less than A$175,000 ($US110,000).  The Australian Chamber of Commerce and Industry has voice strong opposition, highlighting the potential riskes to employer’s ‘legitimate protectable interests’.  Should the proposal advance, the Government has committed to consult with employer organisations, including addressing loopholes that currently allow the use of ‘no-poach’ agreements to restrict employees from joining competing firms.  

Actions for Employers 

Currently, employers in Australia can enforce non-compete clauses to prevent former employees from joining competitors or starting rival businesses, provided the clauses are reasonable and protect legitimate business interests. 

While the proposed ban may not proceed, employers should review non-compete clauses for current and future employees earning less than A$175,000 to assess both enforceability (current) and necessity (future)