As part of the 2025 Federal Budget, the government has announced a prohibition on non-compete clauses for employees earning less than the high income threshold (presently $175,000perannum).
It is planned that the change will take effect in2027. There is nothing for employers to do at the moment, although both business and employees should keep awatching brief on the implementation of this announcement. Further detail will presumably be provided during the implementationprocess.
A few initial observations:
- Much of the commentary from proponents of prohibitions on non-compete clauses (and other forms of post-employment restraint) comes from economists who pay little regard to the decades of nuanced case law developed in superior courts that has sought to carefully balance the legitimate business interests of employers with the right of employees to earn aliving. Instead, the commentary focuses on anecdotes about outlier employers who seek to impose absurdly onerous clauses on their employees that would be given very short shrift if ever tested in court, where the well-established legal principles the competition economists largely choose to ignore would beapplied.
- That said, the imposition of non-compete clauses on less senior employees that would never successfully be enforced in court can still have achilling effect. Notwithstanding the legal position, such employees may understandably be concerned that if they work for acompetitor they will be subject to litigation or other adverse outcomes, particularly when they start receiving letters of demand from employers or their lawyers. The high income threshold is asensible (if imperfect) way of establishing the cohort to whom non-compete clauses should not apply, as employees below that threshold are (as ageneral proposition) unlikely to have had the access to confidential information and/or customer connections to support enforcement of the restraints in court. As such, the prohibition operating at that income level will largely replicate what would ultimately be decided in court (sparing the stress and expense oflitigation).
- There is amissionary zeal behind these reforms that may mean it does not stop at prohibiting non-compete clauses for those under the high income threshold but extends the ban to all employees, even senior executives with substantial access to confidential information and customer connections. Liberating Chief Executive Officers to work for their direct competitors the day after their employment ends seems like an odd policy hill to die on, but that seems to be where this is heading. Employers will then use mechanisms such as non-solicit clauses (to the extent they will still be permitted), extended notice periods and garden leave to protect their businessinterests.
For further information please contact:
Michael Byrnes, Partner
Phone: + 61 2 9233 5544
Email: mjb@swaab.com.au
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
