The federal government’s plans to clamp down on non-compete clauses have spooked some employers, who fear new restrictions could make it easier for former staff to acquire their hard-won clients.
Labor intends to ban non-compete clauses for workers earning below the high-income threshold of $175,000, a move it says will increase employee mobility, spur productivity, and boost wages for low- and medium-paid workers.
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The Treasury shared a consultation paper in late July, canvassing opinions on how those reforms should take place, which workers should be covered, and whether removing additional ‘restraint clauses’ is appropriate.
Last week, SmartCompany asked readers for their thoughts on the proposed reforms and the Treasury consultation.
Respondents broadly argued that any reform should balance the benefits of worker mobility against the value of preserving strong business relationships.
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Non-solicitation ban a “massive issue”
The Treasury paper asks whether non-solicitation clauses, which can prevent ex-employees from hiring former co-workers or approaching the clients of their former employer, should be restricted.
Respondents told SmartCompany that fully banning client non-solicitation clauses could disincentivise small businesses from taking on new staff.
Tilting the balance too far in the favour of workers would expose small businesses to too much risk, some readers noted.
Leela Cosgrove, founder of sales consultancy Strategic Anarchy, said limiting those contract terms could be a “massive issue” for employers in knowledge industries with specific ways of working.
“That inability to control our own client flow, and that everybody could leave at any point and just take all of our people, that’s crazy,” she said.
While the Treasury consultation paper highlighted a full ban on coworker solicitation clauses, it put forward a more modest ban on client solicitation clauses.
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That reform proposal would allow temporary client non-solicitation clauses, giving businesses time to shore up business relationships before an ex-employee is allowed to approach former clients.
The paper suggests a three-month exclusion period — but even six months would be too little to shield small businesses reliant on close client relationships, said Cosgrove.
“Six months is nothing,” she said.
More clarity over compensation, ‘classified’ info
The government is focused on low- and medium-paid workers, arguing those clauses now extend to workers in fields like hairdressing and yoga instruction.
But the Treasury consultation does consider high-income earners, and whether further restrictions make sense for workers with more leverage in contract negotiations.
The paper suggests two potential reforms.
One option would simply extend the non-compete ban to contracts covering high-income earners.
The other would apply some kind of time limit or mandatory compensation element — ensuring those workers are paid for the duration of time they are barred from directly competing with their former employer.
One anonymous respondent — who claimed to be subject to a non-compete clause — said clarity is required on the use of ‘golden handcuff’ contract terms.
“Without guidance on this, there’s a risk that such clauses could be used to block someone from working, without any financial support,” they said.
They also hoped government reforms will clarify what does, and does not, count as ‘confidential information’ protected by employers.
“I’ve personally experienced the weight of this ambiguity,” they said.
“With all this in mind, I believe it’s crucial that any reforms come with clear rules around enforceability, responsibilities, and — if non-competes are allowed at all — mandatory compensation for affected employees,” they continued.
AI and offshoring under question
SmartCompany has also heard arguments that tighter rules around non-competes could encourage employers to move operations offshore, or accelerate their use of artificial intelligence.
Others say the connection between any non-compete reform and local headcount reduction is overblown.
“If we’re going to be perfectly honest, anybody who is going to do that is going to do it anyway,” said Cosgrove.
The Treasury consultation is open until September 5, before the government moves to legislate its ban from 2027.
