By Catherine Ngo Senior Editor and Content Writer, My Business

According to Assistant Minister for Competition Andrew Leigh, the FTC's prohibition aims to bolster the economy and void existing non-compete clauses for individuals earning less than $US151,164 annually.

The Albanese government is actively considering limiting non-compete clauses, including implementing a high-income threshold or term caps. This is a response to concerns that these clauses have become prevalent among low-income workers, hindering wage growth.

Barrister Ian Neil, SC, stated the US ban on non-compete clauses might prompt the Australian government to consider a similar broad prohibition. However, he cautioned that the US, where some states already had bans, has a different industrial relation landscape than Australia.

Neil emphasised the need to critically examine the differences between America and Australia in this regard. He noted that the US has a more sceptical view of restrictive covenants, whereas, in Australia, they are deeply ingrained in the legal tradition.

FTC's action is a significant international development that might intensify the push for reform in Australia, including stricter restrictions or outright bans on using non-compete clauses. The FTC identified a range of other legal avenues for businesses to safeguard their investments and confidential information, including non-disclosure agreements and trade secret laws.

There are concerns that a similar ban in Australia may increase wages in the short term and could deter entrepreneurialism. Long-term entrepreneurs establishing new businesses may question the value of doing so in an environment where employees possess significant mobility.

University of Technology Sydney law professor Joellen Riley Munton tells the AFR that restraints had expanded in Australia with little justification. She states that employers insert non-compete clauses in employment contracts of individuals earning less than $100,000 annually in the current tight labour market. These clauses are intended to protect employers but are considered excessive and counterproductive. Enforcing such clauses hinders labour market vibrancy and the movement of individuals to more productive and innovative enterprises.

In 2019, the NSW Supreme Court's ruling in Quantum v Schenker has been described as one of the "most egregious" in recent times. The case granted an injunction against an employee moving to another employer due to a non-poaching agreement between the two companies.

Professor Riley Munton believes the government will likely adopt an incremental approach to post-employment restraints, primarily focusing on high-income earners (currently defined as those earning over $167,500 under the Fair Work Act), considering concerns about the impact on low-wage workers. She also states that the US's implementation of post-employment restraints may influence Leigh to address the issue in Australia. Still, whether he can withstand the strong resistance from employer groups remains to be seen.

The tendency is to regulate the terms and conditions of employment for ordinary employees rather than addressing the upper echelon of the labour market. Non-compete clauses were initially intended to deter senior-level executives from establishing competing firms or divulging confidential information to subsequent employers. It would be surprising if CEOs were not subject to post-employment restraints in their contracts.

Neil argues that a universal approach to post-employment restraints could have unintended consequences and that a more nuanced approach is needed. He states that blanket bans are unjustifiable, and a careful assessment should be made to determine where reasonable limits can be set.