A new Labor Government will ban non-compete clauses in a worker’s contract when that worker earns less than $175,000.

While employees might cheer this move, what about business owners in mortgage broking, real estate, financial planning, public relations, the trades, hairdressing and many more businesses, who could see an employee leave their business and literally ‘steal’ their clients?

This is what Treasurer Jim Chalmers and Senator Murray Watt, Federal Minister for Employment and Workplace Relations told us on Budget night:

“The Albanese Government is taking action to stop unfair non‑compete clauses that are holding back Australian workers from switching to better, higher‑paying jobs. We will ban non‑compete clauses for most workers that have no justification and drag down wages. Reforming non‑compete clauses is about encouraging aspiration, unlocking opportunity, lifting wages, and making Australia’s economy more dynamic and competitive. Workers should not be handcuffed to their current job when there are better opportunities available for them.

Right now, more than three million Australian workers are covered by these clauses, including childcare workers, construction workers, and hairdressers. Treasury’s Competition Review heard troubling accounts about the misuse of non‑compete clauses, including minimum wage workers being sued by former employers and workers being threatened with legal action if they switched jobs.”

How many workers are really sued because they simply leave a job. Isn’t this confusing the issue? If legal action is threatened, it’s because the departing worker often makes attempts to ‘steal’ the clients the business owner has spent money to attract and retain. And what right do they have to steal clients, databases and intellectual property owned by the business? These new laws shouldn’t make it easier for employees to set up a business in opposition to their old employer, use the database of their old boss and start taking clients!

Here is more what Chalmers and Watt are saying:

“Australians shouldn’t need a lawyer to go to a higher paying job. Even where non‑compete clauses are legally unenforceable, they can lower worker mobility. Our changes will make it easier for workers to switch to a better job, will boost wages. Research suggests the reforms could lift the wages of affected workers by up to four per cent, or about $2,500 per year for a worker on median wages. Productivity Commission modelling suggests the changes could improve productivity and add $5 billion or 0.2 per cent to GDP annually, as well as reduce inflation. These changes will spur new business entry and competition. Non‑compete clauses are a handbrake on business creation and a speed bump on aspiration. The restrictions prevent workers from setting up their own shop and pursuing entrepreneurial ambition.”

The Federal government is undoubtedly doing this for good reason but they’re ignoring the unintended consequences of ‘theft’ that could kill existing businesses. And how will employers/business owners protect their businesses without having to employ a lawyer?

The ban on non‑compete clauses will apply to workers earning less than the high‑income threshold in the Fair Work Act (currently $175,000). We will also close loopholes in competition law that currently allow businesses to:

• Fix wages by making anti‑competitive arrangements that cap workers’ pay and conditions, without the knowledge and agreement of affected workers.
• Use ‘no‑poach’ agreements to block staff from being hired by competitors.

Reforming such anti‑competitive business agreements will bring Australia into line with many other advanced nations and ensure a fairer, more competitive job market. The Government will consult on policy details, including exemptions, penalties, and transition arrangements. We will also consider and consult further on non‑solicitation clauses for clients and co‑workers, and non‑compete clauses for high‑income workers.

Let’s put this to further debate. To do this, I interviewed DHB Consulting’s David Bates, a workplace lawyer and expert for an employer dealing with the thorny issues of being a boss in the modern business, if non-compete clauses are cancelled.

Here’s that interview:

https://youtu.be/eVIgn7-Bkfo?si=SXUe8-fq2pUvDeEP