Non-compete clauses and other restraints

False

The Competition Taskforce is running more analysis on non‑compete clauses to:

  • estimate their prevalence across different industries in Australia
  • understand their impact on labour markets and the Australian economy.
  • explore their relationship with outcomes such as employment, wages, productivity, competition, and innovation.

Treasury is exploring whether we need reform as part of the Competition Review.

Non‑compete clauses

Non‑compete clauses are conditions in employment contracts. They prevent or restrict an employee from moving to a competitor.

The clause usually specifies what it applies to after the employee leaves the employer, this can be a:

  • period of time or
  • geographic area.

Related clauses

Other clauses aiming to protect an employer’s information and business interests include:

  • Non‑disclosure agreements prevent or restrict a worker from revealing certain information they gained while working for the employer.
  • Client non‑solicitation clauses prevent or restrict a worker from asking clients from their employer to become a customer of another business.
  • Co‑worker non‑solicitation clauses prevent or restrict a worker from asking co‑workers from their employer to work for another business.
  • No‑poach agreements where businesses agree not to hire the current or former staff of another business.
  • Wage‑fixing agreements where multiple businesses agree to fix wages or employment conditions. This happens without the knowledge and agreement of affected workers.

These are different from non‑compete clauses and can apply at the same time.

Impact

There is increasing evidence that non‑competes and other restraints are becoming more common. This is causing community concern.

e61 Institute survey

A 2023 survey suggests one in 5 Australian workers have a non‑compete clause. The survey found half of all workers are subject to some kind of restraint.

These workers have a wide range of roles – from highly‑paid professional service workers to childcare workers and yoga instructors.

To read the survey, visit e61's Micro Note: The ghosts of employers' past: how prevalent are non-compete clauses in Australia?

Australian Bureau of Statistics (ABS) survey

A 2023 survey found almost half of all businesses used a restraint clause. This applies across managerial and non‑managerial roles.

One in 5 businesses used non‑compete clauses. Most of them apply non‑compete clauses to over three‑quarters of their workforce.

To read the survey, visit ABS's Restraint Clauses, Australia, 2023

Effects

Traditionally, employers justify these clauses as:

  • protecting their proprietary knowledge, client relationships and contacts
  • promoting investing in growing workers’ skills.

Research found restraints cause a ‘chilling effect’ that discourages employees from switching jobs. This is because workers are unsure how enforceable the employment restraints are. This can happen even when the clause has no merits or is unreasonable.

These restraints may have adverse impacts on other businesses and the broader economy. For example, they make it harder for other businesses to find skilled workers.

The Employment White Paper found non‑compete clauses may hamper job mobility, innovation, and wages growth in industries where they are common. It may also affect competition and productivity.

Labour and job mobility

Both labour mobility and job mobility promote a dynamic, competitive and productive economy.

Labour mobility

Labour mobility is the ability for workers to move jobs.

Moving jobs gives workers the chance to grow skills and get better wages and conditions.

Hiring the most suitable talent helps businesses:

  • adapt to a changing economy
  • expand and innovate into new areas.

Labour mobility also makes it easier for new businesses to enter the market.

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

Labour mobility helps the economy to adapt to structural changes. These changes include the net zero transition and the shift to the care economy.

Job mobility

Job mobility is how much workers changed jobs.

Empirical evidence links lower job mobility in recent decades with lower productivity growth. This is found in Australia and across the OECD.

Previous consultation

The Competition Review invited submissions and questionnaire responses to its issues paper. The paper outlined:

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

This consultation took place between 4 April and 31 May 2024.

Resources