Employment minister’s challenge to restraint clauses ‘complete rubbish’: lawyer
Despite ‘growing concern’ over the effect of restraint clauses, legal experts have questioned the need for additional protections.
Employment Minister Tony Burke said non-compete clauses, also referred to as 'restraint of trade' clauses are a “central focus” of the Albanese government’s ongoing competition review.
“I completely disagree with his statements. They are not correct,” said Dr Brett Davies, partner at Legal Consolidated.
“[Restraint clauses] are designed to protect the assets of the business, just as though they were a desk or a list of names. The common law has protected the rights of the employee to practice their trade or profession since ancient times. A restraint clause cannot stop that,” he said.
While concerns about the potential anti-competitive effects of the clauses have existed for some time, others believe this overlooks the protections already in place regarding the proper use of the clauses.
Employment lawyer Alice DeBoos wrote she was “surprised” by the calls to reform the clauses given the existing law on their use is “well settled and often litigated.”
“Such clauses cannot be used to stifle competition. If a clause has only that purpose and does not protect a legitimate and reasonable business interest, it cannot be enforced,” said Ms DeBoos.
A legitimate business interest has been interpreted to prevent making use of confidential information, non-solicitation of clients, and poaching of other employees, among other things.
Further, professional codes of conduct, such as the CA ANZ already prohibit breaches of confidentiality or unsatisfactory professional conduct. In other words, any reform to come from the ongoing review would be in addition to existing protections.
“This belief that the non-competes or the restraint clauses are affecting future roles, it’s complete rubbish,” said Dr Davies. Restraint clauses are, on the face of it, void and difficult to enforce, he added. “You can’t stop the milkman being a milkman or the financial planner being a financial planner, you never could."
Dr Davies said existing legal arrangements protect only the employee, adding "The only thing the employer has is the employment contract. Give employers a fair go to protect themselves."
The minister’s comments came off the back of new data released by the ABS which found that one in five Australian employers make some use of non-compete clauses. Roughly 70 per cent of those who make use of them apply the clauses to more than three-quarters of their workforce.
Of all industries, employers in financial services made the greatest use of non-compete clauses (at 40 per cent of employers) while the data suggest employers are looking to increase their use.
Assistant Minister for Competition Andrew Leigh said, “There is growing concern internationally that these clauses are increasingly restricting workers from shifting to better-paying jobs and may be hampering business innovation and productivity.”
“Employment terms that make it harder for workers to move to a better job may be acting as a drag on wages and economic dynamism.”
