Every so often, even a government addicted to regulation stumbles upon a policy that makes Australians freer. The Albanese Labor government has announced it wants to take a sledgehammer to non-compete clauses: the contractual handcuffs that tell employees they may resign but cannot take their skills to a rival.
For once, Canberra is proposing to remove a barrier to competition instead of creating another one. Credit where credit is due.
The Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill remains an exposure draft, not law. If enacted substantially as drafted, the reforms would prohibit non-compete clauses for employees earning at or below the current $190,100 high-income threshold, and for casuals regardless of earnings.
It would also prohibit co-worker non-solicitation clauses (i.e. contracts that prevent former employees from soliciting or poaching former colleagues or contractors), and classify agreements between employers not to poach staff or compete on wages as illegal cartel conduct under the Competition and Consumer Act, subject to civil and criminal penalties.
Labor has spotted a genuine restraint on liberty. We’ll see in due course whether they finish the job and pass the reforms.
Employers will need to audit and remove prohibited non-compete and co-worker non-solicit clauses from standard employment contracts.
The principle underpinning the legislation is simple: your boss does not own you.
An employer owns its machinery, its intellectual property and its genuine trade secrets. It does not own the electrician’s hands, the engineer’s brain or the salesperson’s accumulated experience. Those skills belong to the individual. When a worker leaves, their skills leave too.
A non-compete condition can transform an employer’s legitimate interest in protecting information into an illegitimate claim over a person’s future livelihood. It tells a worker: you may quit, but don’t dare work for someone who might compete with us. In industries with a small pool of potential employers, it can devastate the careers of employees with specialist skills.
What sort of free market is that?
The Australian Bureau of Statistics found that approximately 20 per cent of businesses used non-compete clauses in 2023. They have spread into ordinary employment contracts, where the threat of legal trouble can be enough to stop someone accepting a better offer.
Research has found workers at firms using non-competes earned less than comparable workers at comparable firms relying on confidentiality agreements. The OECD has also linked greater non-compete prevalence with weaker labour productivity and slower movement of workers to more productive firms.
Competition is not just something that happens between businesses selling products. It must also occur between businesses buying labour. If employers can bid for customers but employees cannot entertain bids for their own skills, the market is distorted.
Predictably, some business groups are horrified. The mining industry worries that rivals could poach whole project teams and disrupt major investments. That is a real commercial risk, but the right response is to pay people well, offer retention bonuses, build a decent workplace, and protect actual confidential information. Private businesses should not rely on the government regulating their competition out of the market.
There is, admittedly, a libertarian objection worth taking seriously: freedom of contract. Shouldn’t adults be allowed to trade a period of restricted mobility for higher pay or valuable training? Sometimes, yes. But a senior executive who knowingly negotiates a paid restraint is not in the same position as a young employee handed a boilerplate contract on their first day.
Labor’s draft legislation needs refinement; that’s the purpose of an exposure draft, although too often it’s the voice of big unions and big business that drowns out the individual.
In Germany, enforceable post-employment non-compete contracts generally require compensation of at least half the employee’s previous remuneration during the restraint period.
Ontario, Canada has prohibited most new employment non-competes.
The United States tried a federal ban, but the Federal Trade Commission’s rule was struck down and never took effect.
For once, Canberra is proposing to remove a barrier to competition instead of creating another one. Credit where credit is due.
There is no universal model, but there is ample reason to question the old Australian habit of letting government have the final say rather than the individuals. Labor’s appetite for workplace intervention has hardly disappeared. But libertarians should judge policies by whether they expand freedom, not by the colour of the party proposing them.
A free society does not guarantee employers that their best people will stay. It guarantees workers the right to leave, the right of rivals to compete, and gives businesses the incentive to earn loyalty rather than compel it.
Labor has spotted a genuine restraint on liberty. We’ll see in due course whether they finish the job and pass the reforms.
