Non-compete clauses and other restraints

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Labour mobility promotes a dynamic and productive economy that can adapt to change.

For workers, the ability to move jobs offers the opportunity for higher wages and better conditions, and to develop skills and capabilities.

For businesses, labour mobility helps businesses adapt to a changing economy and to expand and innovate into new areas by attracting the most suitable talent.

Together, this supports higher productivity and economic growth over time.

The Australian Government’s 2023 Employment White Paper identified non‑compete and related clauses as potentially hampering job mobility, innovation, and wages growth in industries where they are prevalent.

As part of the Competition Review, Treasury is building a deeper understanding of the impact of non‑compete clauses on labour markets and the Australian economy, and exploring whether reform may be needed.

Understanding non‑compete and related clauses

Non‑compete clauses are conditions in employment contracts that restrict an employee from moving to a competitor. They usually define a specific period of time and/or geographic area over which the clause applies after the employee leaves the employer.

These clauses are traditionally justified to protect an employer’s proprietary knowledge, client relationships and contacts, and to incentivise investments in developing workers’ skills.

Non‑compete clauses differ to and exist alongside other clauses that seek to protect an employer’s information and business interests, including:

  • non‑disclosure agreements: where workers are restricted from sharing certain information
  • non‑solicitation clauses: that prohibit a former employee from soliciting former clients/co‑workers
  • no‑poach agreements between employers: where businesses agree not to hire the current or former staff of another business.

Research from the e61 Institute (2023) suggests around 1 in 5 Australian workers are subject to a non‑compete clause, spanning a diverse range of sectors from highly‑paid roles in professional services to childcare workers and yoga instructors.

Research also found that uncertainty about the enforceability of employment restraints in Australia exerts a “chilling effect” that discourages employees from switching jobs regardless of the reasonableness and merits of the clause. This can hamper competition and wage growth and may also reduce business innovation and productivity.

Why the Competition Review is looking at worker non-compete clauses and other restraints

There is an emerging body of evidence and growing community concerns that non‑compete and other restraints are becoming increasingly prevalent and, despite benefiting some businesses, may be hampering job mobility and restricting workers from switching to better paying jobs.

Job mobility – the movement of workers between jobs – plays an important function in a dynamic and competitive economy, with empirical evidence linking lower rates of job mobility in recent decades with reduced productivity growth, both in Australia and across the OECD.

Labour mobility is also particularly important for managing structural changes in our economy, including the transformation to net zero and the shift to the care economy.

These restraints on workers may also have adverse impacts on other businesses (for example, making it more difficult to find skilled workers) and the broader economy.

Consultation

The Competition Review is inviting public submissions and questionnaire responses to its issues paper.

The issues paper outlines:

  • policy concerns related to non‑competes and other restraint of trade agreements between workers and businesses, and no-poach and wage‑fixing agreements between businesses
  • the evidence in Australia and overseas on the prevalence of these clauses and their impact on workers, businesses and the broader community.

For full details see Worker non-compete clauses and other restraints

Resources