Research suggests that 1 in 5 Australian workers are subject to non-compete or other restrictive clauses in their employment contracts. These restrictions affect people in highly paid roles, as well as contractors and casual workers. So, what are they, and are they legal?
Employers justify non-compete clauses as a way of protecting their proprietary knowledge, contacts, client relationships etc. They restrict an employee or contractor, who leaves an employer, from taking the intelligence they have acquired to a competitor or setting up in opposition. Similarly, business owners who sell their businesses are often subject to restrictions, including a restraint on opening a similar or related business near to the original one.
Typical non-compete clauses specify that an employee or contractor who leaves an employer cannot work in the same or similar business for a specific period of time or within a specific geographic area. Many contracts include a non-solicitation clause and restrictions on the sharing of information gained in the previous employment.
To be enforceable a non-compete clause needs to be reasonable in terms of its scope and duration and only as necessary to protect the employer’s legitimate business interests. They should specify the particular risk that the restrictions are protecting – otherwise they may be seen as anti-competitive or a restraint of trade. Hence, many of the restrictions in contracts are not enforceable and do not hold up in court.
The Commonwealth Government is currently reviewing this matter, due to concerns that they inhibit employee mobility; act as a disincentive for people to change jobs and stifle innovation.
