While there’s been no legislation passed as yet, the Federal Government has made clear its intention to this year take action to ban what it deems to be unfair “non-compete” or “restraint” clauses.
Whilst notoriously difficult to enforce, these clauses are nonetheless quite prevalent as they, on the face of it at least, limit the opportunity for former employees to take certain actions that could potentially be damaging to their previous employer. Depending on the specific provisions, such clauses may, for example (and for a designated period of time), seek to prevent former employees from:
- working with a competitor
- opening or being involved in the ownership of a competing business
- contacting clients, employees, suppliers or others associated with their former employer, or otherwise seeking to interfere with those relationships.
While consultation still needs to occur before legislation is drafted, and it’s likely that there will be some modest exceptions and transition arrangements for those contracts that already include such clauses, it’s understood that the Government is particularly keen to severely limit the use of non-compete clauses for employees earning below the high income threshold (currently $183,100pa).
It’s expected that the consultation will occur this year, with a view to legislation commencing some time in 2027.
So What Can You Do to Prepare?
If your business/organisation currently includes such clauses in contracts of employment, and you want to stay ahead of the game, we’d suggest you take the following steps to prepare for what appears to be inevitable changes:
- Review existing contracts to identify those with current relevant clauses, noting particularly those employees who are earning below the high income threshold
- Consider, or at least begin to prepare for, changes to contract terms such that critical business assets are still protected independently of non-compete or restraint clauses (this might include, for example, taking steps to “beef up” clauses related to confidentiality and intellectual property)
- Begin to review the means by which information is accessed and managed in your business, to optimise protections (it may be, for example, that client and/or other critical information is currently able to be accessed by some in your business who may not actually need it in order to perform their roles), and
- Keep your eyes and ears open for developments as the consultation phase proceeds (we’ll provide updates through our social media and other communication channels, so at least stay tuned into those 😊).
Forewarned is forearmed as they say….
Reach out if you need further information or assistance.
