# Non-competes and other restraints: understanding the impacts on jobs, business and productivity

## Issues Paper

#### April 2024


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## Contents

Consultation process ........................................................................................................................... 1

Request for feedback and comments ....................................................................................................... 1

Introduction ........................................................................................................................................ 2

The importance of job mobility to our economy .................................................................................. 4

Post-termination worker restraints of trade ........................................................................................ 6

Non-compete clauses ............................................................................................................................... 6

Non-solicitation clauses ............................................................................................................................ 6

Non-disclosure clauses ............................................................................................................................. 6

Prevalence of restraint of trade clauses in Australia ................................................................................ 7

Non-compete clauses .......................................................................................................................... 8

Non-solicitation clauses ....................................................................................................................... 8

Non-disclosure clauses ........................................................................................................................ 9

Enforceability of restraint of trade clauses .............................................................................................10

Business interests that have supported enforceable restraint clauses .............................................11
Rule of severance and cascading clauses ..........................................................................................12
Restraints of Trade Act 1976 (NSW) ..................................................................................................14
Enforcement in practice ....................................................................................................................14

Impact of restraint of trade clauses on workers, businesses and job mobility ..................................... 17

Non-compete clauses .............................................................................................................................17

Impact on businesses ........................................................................................................................18
Impact on workers .............................................................................................................................22

Other impacts ....................................................................................................................................24
International comparison of regulation of non-compete clauses ......................................................24

Non-solicitation clauses (of clients, other business contacts, co-workers) .............................................26

Impact of non-solicitation clauses .....................................................................................................26

Non-disclosure clauses ...........................................................................................................................29

Impact of non-disclosure clauses.......................................................................................................29

Restraints on workers during employment ........................................................................................ 30

Part time, casual and gig workers ......................................................................................................30

No-poach and wage-fixing agreements .............................................................................................. 32

No-poach agreements ............................................................................................................................32
Wage-fixing agreements .........................................................................................................................33
Prevalence ..............................................................................................................................................33
Enforcement and regulation of no-poach and wage-fixing agreements ................................................34
Impact of no-poach and wage-fixing agreements ..................................................................................35
International regulation and enforcement: no-poach and wage-fixing agreements ..............................37

Conclusion and next steps ................................................................................................................. 39


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## Consultation process

### Request for feedback and comments

This paper seeks information and views to inform the Competition Review’s consideration of
non-compete clauses and related clauses that restrict workers from shifting to better-paying jobs.
Should any potential reform be needed, the Government will engage in further consultation on
potential options.

Questions are included throughout the paper to guide comments. You are invited to answer some or
all of the questions, or to comment on issues more broadly.

While submissions may be lodged electronically or by post, electronic lodgement is preferred. For
accessibility reasons, please submit responses sent via email in a Word or RTF format. An additional
PDF version may also be submitted.

##### Publication of submissions and confidentiality 

All information (including name and address details) contained in formal submissions will be made
available to the public on the Australian Treasury website, unless you indicate that you would like all
or part of your submission to remain confidential. Automatically generated confidentiality statements
in emails do not suffice for this purpose. Respondents who would like part of their submission to
remain confidential should provide this information marked as such in a separate attachment.

Legal requirements, such as those imposed by the Freedom of Information Act 1982, may affect the
confidentiality of your submission.

##### Closing date for submissions: 31 May 2024

Email CompetitionTaskforce@treasury.gov.au


Mail


Competition Taskforce
The Treasury
Langton Crescent
PARKES ACT 2600


Enquiries Enquiries can be directed to CompetitionTaskforce@treasury.gov.au


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## Introduction

On 23 August 2023, the Australian Government announced that non-compete and related clauses in
employment contracts would be an area of policy considered by the Competition Review. The
Government’s Employment White Paper Roadmap, released in September 2023, reiterated the
Government’s intent to investigate non-compete clauses, and noted emerging research that
non-compete clauses may be restricting workers from switching to better-paying jobs and hampering
job mobility and innovation. There is empirical evidence linking lower rates of job mobility with
reduced productivity growth, both in Australia and across the OECD.[1] Labour mobility is also
particularly important for managing structural changes in our economy, including the transformation
to net zero and the shift to the care economy.[2]

There is growing international evidence that restraints of trade – and particularly non-compete
clauses – are becoming increasingly prevalent. This evidence also suggests that despite benefiting
some businesses, restraint of trade clauses are adversely impacting workers, other businesses and
broader economic outcomes – through reduced wages growth, job mobility, and access to skilled
workers. Some countries already regulate non-compete clauses (e.g. Austria, Finland and Germany),
while others, including the United States (US) and United Kingdom (UK), are proposing reforms that
would restrict or ban their use.

##### What are non-compete and other restraint of trade clauses?

Non-compete clauses are a type of restraint of trade clause that seek to restrict a worker (both
employees and independent contractors) from working for a competitor or establishing a
competing business, typically within a geographic area and for a time period after the worker
ceases employment.

Non-compete clauses can be distinguished from other types of restraint of trade clauses, such as
client or co-worker non-solicitation and non-disclosure clauses. These other clauses can restrict
what a worker can do with relationships built during employment, or how they can use
confidential information learned on the job.

Separately, two or more businesses may agree not to hire each other’s workers (a no-poach
agreement), or to fix wages or other working conditions (a wage-fixing agreement). Workers may
be unaware of these restrictions which can harm labour market competition and worker
outcomes.

A recent Australian Bureau of Statistics (ABS) survey has found that 46.9 per cent of businesses
surveyed used some kind of restraint clause, including for workers in non-executive roles. The survey
also found 20.8 per cent of businesses use non-compete clauses for at least some of their staff and
68.2 per cent of these businesses used them for more than three-quarters of their employees.[3]

1 [Z Durretto, O Majeed and J Hambur, ‘Overview: Understanding productivity in Australia and the global](https://treasury.gov.au/sites/default/files/2022-10/p2022-325290-overview.pdf)
[slowdown’, Treasury Round Up, 2022; F Calvino, C Criscuolo, and R Verlhac, ‘Declining business dynamism:](https://treasury.gov.au/sites/default/files/2022-10/p2022-325290-overview.pdf)
[structural and policy determinants’, OECD, 2020.](https://www.oecd-ilibrary.org/science-and-technology/declining-business-dynamism_77b92072-en#:~:text=Structural%20and%20policy%20determinants,-This%20paper%20analyses&text=Average%20trends%20within%20sectors%20point,heterogeneity%20emerging%20as%20prominent%20determinants.)

2 [Australian Government, 2023-24 Budget, ‘Structural shifts shaping the economy’, Budget Paper 1](https://budget.gov.au/content/bp1/download/bp1_bs-4.pdf)
Statement 4, May 2023.

3 [Australian Bureau of Statistics (ABS), ‘Restraint Clauses, Australia, 2023’, ABS website, 2024.](https://www.abs.gov.au/articles/restraint-clauses-australia-2023#data-downloads)


-----

This issues paper outlines policy concerns with the use of these restraint clauses and seeks feedback
on their impact on businesses, workers and the broader economy. It has been informed by experience
in Australia and overseas, including targeted engagement with lawyers, business groups, unions, think
tanks, international organisations, and relevant national and international government agencies.
Following a recommendation in the recent Independent Review of the Franchising Code of Conduct,
the Competition Review will also consider how restraints of trade and other uncompetitive terms in
franchise agreements may be affecting franchise workers.[4] The feedback received will inform the
Government’s consideration of whether reform is needed. If so, the Government will engage in
further consultation on potential reform options.

4 [M Schaper, Independent Review of the Franchising Code of Conduct, Australian Government, 2023.](https://treasury.gov.au/publication/p2024-487230)


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## The importance of job mobility to our economy

Job mobility – the movement of workers between jobs – plays an important function in a dynamic and
competitive economy. Workers moving to better jobs is a key source of entrepreneurship and
innovation in the economy, including by enabling the creation and expansion of new businesses.
Businesses benefit by gaining access to the skills they need, while workers benefit by matching with to
roles that better suit their skills and preferences, which can mean higher wages and job satisfaction.

Australian research has found that job mobility is associated with higher wages for workers, 2F[5] even for
those who stay in their existing jobs, since a more dynamic labour market increases workers’
bargaining power.[6] Job mobility is particularly important for younger workers, who to find jobs that
better match their skills, which also brings positive mental health benefits.[7] Young workers also receive
the largest pay rise from switching jobs compared to other age groups.[8]

Additionally, job mobility plays an important role in increasing aggregate productivity by supporting
the expansion of more productive businesses through the movement of workers. Workers who switch
jobs tend to move to businesses that are (on average) 13.1 per cent more productive than the
businesses they leave.[9] However, the share of workers moving to higher productivity businesses has
fallen slightly over time from 54.2 per cent between 2003 to 2006 to 52.8 per cent between 2015 and
2019.[10] Similarly, Treasury research has also highlighted that the pace of labour reallocation from less
to more productive businesses has slowed since 2012, perhaps accounting for about a quarter of the
slowdown in aggregate labour productivity growth in Australia.[11]

Australia has seen a general decline in job mobility over the past 30 years, a rate that is similar to
other advanced economies.[12] Some of this may reflect an ageing population – older workers tend to
shift jobs less.[13] But given the economic benefits from job mobility, any barriers that may be limiting
people from moving to better opportunities must be carefully assessed.

At the same time, there is evidence that rising market concentration is giving employers more
bargaining – or ‘monopsony’ – power in some markets, which recent Australian research suggests
partly explains low wage growth prior to the COVID-19 pandemic.[14] This may be particularly relevant
for workers in regional and remote areas of Australia with fewer choices of employer. While some
monopsony power can evolve ‘naturally’ from markets (such as a town based around a mine), it can
also be generated by law. Distributional impacts of market power in the labour market are also

5 [For example, see A Wong, ‘Climbing the wage ladder: linking job mobility and wages’, e61 Institute, 2024;](https://e61.in/wp-content/uploads/2024/02/Climbing-the-wage-ladder-Linking-job-mobility-and-wages.pdf)
[and S Black and E Chow, ‘Job Mobility in Australia during the Covid-19 Pandemic’, Reserve Bank of Australia](https://www.rba.gov.au/publications/bulletin/2022/jun/job-mobility-in-australia-during-the-covid-19-pandemic.html)
Bulletin, June 2022.

6 [N Deutcher, ‘Job-to-job transitions and the wages of Australian workers’, Treasury Working Paper,](https://treasury.gov.au/sites/default/files/2019-11/p2019-37418-jobswitching-v2.pdf)
Australian Government, 2019.

7 [A Michielsen and J Buckley, ‘The mental health costs of job loss, job insecurity and skill mismatch’, e61](https://e61.in/wp-content/uploads/2023/03/The-mental-health-costs-of-job-loss-job-insecurity-and-skill-mismatch.pdf)
Institute, 2023.

8 Wong, ‘Climbing the wage ladder: linking job mobility and wages’.

9 [J Buckley, ‘Productivity in Motion: The Role of Job Switching’, e61 Institute, 6 November 2023, p 1.](https://e61.in/wp-content/uploads/2023/11/Productivity-in-motion-the-role-of-job-switching.pdf)

10 Buckley, ‘Productivity in Motion: The Role of Job Switching’, p 2.
[11 D Andrews and D Hansell, ‘Productivity-Enhancing Labour Reallocation in Australia’, Treasury Working](https://treasury.gov.au/sites/default/files/2019-11/p2019-37418-productivity_0.pdf)

Paper, 2019, p 2.

[12 Australian Treasury, Working Future: The Australian Government’s White Paper on Jobs and Opportunities,](https://treasury.gov.au/employment-whitepaper/final-report)

Australian Government, 2023.

[13 Productivity Commission, ‘A more productive labour market’, 5-year Productivity Inquiry Report, Vol 7,](https://www.pc.gov.au/inquiries/completed/productivity/report)

2023, p 8-9.

[14 J Hambur, ‘Did Labour Market Concentration Lower Wages Growth Pre-COVID’, RBA Research Discussion](https://www.rba.gov.au/publications/rdp/2023/2023-02/full.html)

Paper, 2023.


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uneven: there is evidence that workers with caring responsibilities may have inflexible preferences
when choosing a job (such as flexibility of hours, proximity to homes and schools) that reduce the
number of potential employers and increases those businesses’ monopsony power.[15] The Organisation
for Economic Co-operation and Development (OECD) identified non-compete clauses, no-poach and
wage-fixing agreements as increasing the monopsony power of businesses over workers.1[16]

Restricting job mobility through non-compete clauses may be particularly important for some
businesses, by protecting their intellectual property and confidential information which can give those
businesses the confidence to invest and innovate. The key question for policy is whether the benefits
from non-compete clauses balance the broader costs to the economy, or if businesses can access the
benefits in another way. There has been increasing evidence overseas suggesting that the use of
non-compete clauses may be substantially hampering job mobility and wages growth and may also be
affecting broader economic outcomes including business dynamism and innovation.[17]

15 OECD, OECD Employment Outlook 2022 – Building Back More Inclusive Labour Markets, 2022, p 139.
[16 OECD, OECD Employment Outlook 2022 – Building Back More Inclusive Labour Markets, p 137.](https://www.oecd-ilibrary.org/search?value1=employment+outlook+2022&option1=quicksearch&facetOptions=51&facetNames=pub_igoId_facet&operator51=AND&option51=pub_igoId_facet&value51=%27igo%2Foecd%27&publisherId=%2Fcontent%2Figo%2Foecd&searchType=quick)
[17 E Starr, Noncompete clauses: a policymaker’s guide through the key questions and evidence, Economic](https://eig.org/noncompetes-research-brief/)

Innovation Group, 2023.


-----

## Post-termination worker restraints of trade

There are a number of clauses in worker contracts that limit what a worker can do, both during
employment and when they stop working for a business including non-compete, non-solicitation and
non-disclosure clauses.

### Non-compete clauses

Non-compete clauses can restrict former workers from working for a competitor or establishing a
competing business, typically within a certain geographic area and for a certain time period after the
worker leaves the business.

Non-compete clauses are generally considered a ‘catch all’, compared to other more targeted
restraint of trade clauses, providing businesses with more far-ranging protections. They can purport to
protect business goodwill and intellectual property by delaying the risk that employees’ knowledge of
trade secrets and customer relationships may be used by a competitor. They may also seek to protect
and encourage investment in workers’ knowledge, training or customer relationships so they are more
productive. However, in reducing the costs for business associated with recruitment and job turnover,
they also limit a worker’s potential future job opportunities.

### Non-solicitation clauses

Non-solicitation clauses can restrict former workers from ‘soliciting’ former clients (or customers[18]) or
other business contacts (for example, suppliers), or co-workers.

During employment, many workers will engage and develop connections with clients, other business
contacts and co-workers. Businesses will often facilitate these connections to improve services.

A non-solicitation clause may seek to protect the business against the former worker using the
knowledge of, and relationship with, these former contacts for the benefit of their new employer or to
start a new competing business.

### Non-disclosure clauses

Non-disclosure (or confidentiality) clauses can restrict former workers disclosing confidential
information gained during the course of employment. Such confidential information can include trade
secrets, such as product formulas and client lists, that the worker may otherwise seek to use in a
future job.[19]

Non-disclosure clauses provide protection to businesses that provide confidential information to
workers. Such clauses may facilitate investment in training and hiring of workers, and may be
particularly relevant for senior workers, who can require access to a wide range of (often confidential)
information to perform their roles.

18 In this paper, clients and customers have the same meaning.
19 Non-disclosure clauses may also be used in other contexts, such as dispute settlements, which is beyond

the scope of this issues paper.


-----

Businesses also have other statutory and common law protections available to them to protect
confidential information, including section 183 of the Corporations Act 2001 (Cth) (Corporations Act)
which prohibits an employee from improperly using their position (including the company’s
information gained through their position) for personal gain, third-party gain, or to cause detriment to
the company.[20] The Privacy Act 1988 (Cth) (Privacy Act) also protects certain personal information
collected by certain businesses by restricting the use or disclosure of this information by former
workers.

### Prevalence of restraint of trade clauses in Australia


Identifying the prevalence of restraint of trade clauses in worker contracts in Australia is important to
assess the potential magnitude of their impact. Recent surveys of employers and workers suggests
restraint clauses[21] are reasonably common (Figure 1).

###### Figure 1: Use of restraint clauses by employers (by type)

Per cent Per cent

50 50

Non-compete Non-solicitation of clients Non-solicitation of co- Non-disclosure

workers

[Source: ABS, Restraint Clauses, Australia, 2023.](https://www.abs.gov.au/articles/restraint-clauses-australia-2023)
Note: The figures above report the share of businesses surveyed (per cent). They include employers that responded “Yes”
to the use of these restraints and does not include employers that responded “Unsure”. Figures do not add to
100 per cent, as employers may use more than one kind of restraint clause.


According to the ABS,[22] restraint clauses are used across all industries and all business sizes,[23] with
46.9 per cent of Australian businesses using some type of restraint clause. The reason or motivation
for using restraint of trade clauses may vary by business size – for example, smaller businesses may
use standard form employment contracts which automatically include these clauses, rather than a

20 Examples of actions for relief against former employees include Lifeplan Australia Friendly Society Ltd v


_Woff [2016] FCA 248; Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia_
_Friendly Society Limited [2018] HCA 43. Also see Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172._


21 The term restraint clauses are used interchangeably with restraint of trade clauses in this paper.
22 ABS, ‘Restraint Clauses, Australia, 2023’.
23 The ABS defines business size based on employment size, grouped into micro/small business (0-19

employees), medium-sized business (20-199 employees) and large business (employment size greater than
[199 employees). See ABS, Australian Industry (2021-22), May 2023.](https://www.abs.gov.au/statistics/industry/industry-overview/australian-industry/latest-release)


-----

more bespoke company specific employment contract. Use is also not limited to upper-level managers
or executives but includes all workers.[24] The use of restraint clauses by businesses is also growing over
time, with the ABS survey results indicating that use had increased over the past five years and was
likely to increase in the future.[25 ]

##### Non-compete clauses

Around 20.8 per cent of businesses used a non-compete clause for some of their workers in 2023.[26]
Usage of non-compete clauses is highest among the largest businesses that have 1,000 or more
workers, with 40.0 per cent of these businesses using them.

The ABS survey also reported that 68.2 per cent of businesses which used non-compete clauses, used
them for over three-quarters of their workers. Non-compete clauses were used in all industries across
the economy, although are particularly common in knowledge- and relationship-focussed services
industries including finance, real estate, professional services and healthcare.[27] This is broadly
consistent with the e61 Institute’s 2023 online survey of 3,000 respondents (‘e61 Institute’s worker
survey’), that estimated 22 per cent of Australian workers had a non-compete clause, including many
workers in low-paid relationship-focussed jobs such as childcare workers and yoga instructors.[28]

Australian data on the prevalence of non-compete clauses is comparable to evidence from other
jurisdictions. In the UK, 15.2 per cent of businesses reported using a non-compete clause.[29] For
workers, surveys report: 26 per cent in the UK,[30] 18.1 per cent in the US,[31] and 37 per cent in the
Netherlands (having doubled from 18.9 per cent in 2015)[32] are covered by non-compete clauses. In
Austria, prior to setting a minimum income threshold for non-compete clauses in 2006, over
30 per cent of low-income workers were estimated to have one.[33]

##### Non-solicitation clauses

Non-solicitation of clients

The ABS survey reported 25.4 per cent of businesses used a client non-solicitation clause for some of
their workers in 2023.[34] Client non-solicitation clauses were the second most used restraint. Client

24 The ABS restraint clauses survey reported 68.8 per cent of employers using at least one restraint clause for

upper-level managers or executives and 74.8 per cent of employers using at least one restraint clause for
other types of employees. The ABS notes that the proportion figures do not sum to 100 per cent, as the
survey response are not mutually exclusive.

25 ABS, ‘Restraint Clauses, Australia, 2023’. See Table 5 and Table 7.
26 ABS, ‘Restraint Clauses, Australia, 2023’. See Table 1.
27 ABS, ‘Restraint Clauses, Australia, 2023’.
[28 D Andrews and B Jarvis, ‘The ghosts of employers’ past: how prevalent are non-compete clauses in](https://e61.in/wp-content/uploads/2023/06/The-ghosts-of-employers-past-how-prevalent-are-non-compete-clauses-in-Australia.pdf)

[Australia?‘, e61 Institute, 2023.](https://e61.in/wp-content/uploads/2023/06/The-ghosts-of-employers-past-how-prevalent-are-non-compete-clauses-in-Australia.pdf)

[29 Office of National Statistics (ONS), Business Insights and Conditions Survey data, Wave 87: 27 July 2023.](https://www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/businessinsightsandimpactontheukeconomy)
[30 Competition and Markets Authority, ‘Competition and market power in UK labour markets’, UK](https://assets.publishing.service.gov.uk/media/65b2312af2718c000dfb1d13/Competition_and_market_power_in_UK_labour_markets.pdf)

Government, 2024, p 8.

[31 E Starr, J Prescott, and N Bishara, ‘Noncompete Agreements in the U.S. Labor Force’ Journal of Law and](https://repository.law.umich.edu/articles/2263/)

_Economics, 2021 64(1), p 5._

[32 M Bartsch, D Grijpstra and R Houweling, ‘De werking van het concurrentiebeding‘, Panteia Research](https://www.rijksoverheid.nl/documenten/rapporten/2021/06/25/eindrapport-onderzoek-werking-van-het-concurrentiebeding-panteia)

[Bureau, 2021, p 117; M Streefkerk, S Elshout and B Cuelenaere, ‘Concurrentiebeding. Dataverzameling bij](https://docplayer.nl/52466944-Concurrentiebeding-dataverzameling-bij-het-liss-panel-in-opdracht-van-het-ministerie-van-sociale-zaken-en-werkgelegenheid.html)
[het LISS panel’, 2015, CentER Data, p 3.](https://docplayer.nl/52466944-Concurrentiebeding-dataverzameling-bij-het-liss-panel-in-opdracht-van-het-ministerie-van-sociale-zaken-en-werkgelegenheid.html)

[33 S Young, ‘Noncompete Clauses, Job Mobility, and Job Quality: Evidence from a Low-Earning Noncompete](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3811459)

[Ban in Austria’, July 5, 2021, p 3.](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3811459)

34 ABS, ‘Restraint Clauses, Australia, 2023’. See Table 1.


-----

non-solicitation clauses are predominantly used by larger businesses, with the highest proportion
(46.3 per cent) reported for businesses with between 200 and 999 workers.

The ABS survey also reported that 71.3 per cent of businesses which used client non-solicitation
clauses, used them for over three-quarters of their workers. Client non-solicitation clauses were used
in all industries across the economy, with the highest prevalence in financial services and real estate.

The e61 Institute’s worker survey estimates that 16 per cent of Australian workers are covered by a
client non-solicitation clause.

In the UK, 11.4 per cent of businesses reported using a client non-solicitation clause.[35] While in the US,
12 per cent of workers are estimated to be covered by a client non-solicitation clause.[36]

Non-solicitation of co-workers

The ABS survey reported 18.0 per cent of businesses used a co-worker non-solicitation clause for
some of their workers in 2023,[37] the least used of the four restraint clauses reported in the survey.
Co-worker non-solicitation clauses were most often used by large businesses, with reported use of
37.7 per cent among businesses that have 1,000 or more workers and 37.6 per cent for businesses
with between 200 and 999 workers.

The ABS survey also reported that 67.2 per cent of businesses which used co-worker non-solicitation
clauses, used them for over three-quarters of their workers. Co-worker non-solicitation clauses were
used in all industries across the economy, with the highest prevalence in real estate and financial
services.

The e61 Institute’s worker survey estimates that 7 per cent of Australian workers are covered by a
co-workers non-solicitation clause.

In the UK around 5.9 per cent of businesses reported using a co-worker non-solicitation clause.[38] While
in the US, 4 per cent of workers are estimated to be covered by a co-worker non-solicitation clause.[39]

##### Non-disclosure clauses

Non-disclosure clauses were the most used restraint, with the ABS survey reporting 45.3 per cent of
businesses using a non-disclosure clause for some of their workers in 2023.[40] Non-disclosure clauses
were most used by larger businesses (78.9 per cent).

The ABS survey also reported that 81.3 per cent of businesses which used non-disclosure clauses, used
them for over three-quarters of their workers. Non-disclosure clauses were used in all industries
across the economy, with the highest prevalence in public administration and safety, financial
services, mining, real estate, and healthcare.

The e61 Institute’s worker survey estimates that 26 per cent of Australian workers are covered by a
co-workers non-solicitation clause.

35 ONS, Business Insights and Conditions Survey data, Wave 87: 27 July 2023.
36 Starr et al., ‘Noncompete Agreements in the U.S. Labor Force’, 2021 p 30.
37 ABS, ‘Restraint Clauses, Australia, 2023’.
38 ONS, Business Insights and Conditions Survey data, Wave 87: 27 July 2023.
39 Starr et al., Noncompete Agreements in the U.S Labor Force’, 2021, p 30.
40 ABS, ‘Restraint Clauses, Australia, 2023’.


-----

Comparable to Australia data, non-disclosure clauses are the most utilised restraint overseas. In the
UK, 29.3 per cent of businesses reported using a non-disclosure clause.[41] While in the US, 36 per cent
of workers are estimated to be covered by a co-worker non-disclosure clause.[42]

### Enforceability of restraint of trade clauses

In Australia, restraint of trade clauses between workers and businesses are governed by the common
law, with the partial exception of New South Wales (NSW).[43 ]

At common law, worker restraints of trade are presumed to be against the public interest and
therefore void and unenforceable unless they are reasonably necessary to protect the legitimate
interest of the employer.[44] This test will be applied to the particular facts and circumstances of the
worker-employer relationship and ultimately only determined by a court. In broad terms, the courts
application of the common law proceeds on a pragmatic, discretionary basis, recognising the
limitation on a worker’s freedom of trade with the legitimate business interest of the employer.[45]

In a dispute, between a business and worker, a court will consider the nature and extent of the
business interest to be protected (for example, confidential client information) and whether the scope
of restriction the business wants imposed is reasonable including its geographic area, time period and
activities which the restraint seeks to control.[46] This assessment does not typically consider the
worker’s interests[47] but may take account of the amount of compensation received by the worker[48]
and if the restraint operates to prevent the person from earning a living or having reasonable
alternative employment opportunities.[49] There are few decided cases in which an otherwise valid
restraint has been struck down as being against the public interest.[50]

41 ONS, Business Insights and Conditions Survey data, Wave 87: 27 July 2023.
42 Starr et al., ‘Noncompete Agreements in the U.S. Labor Force’, 2021 p 30.
43 _The Restraint of Trade Act 1976 (NSW) modifies the common law rules where the employment contract is_

subject to the laws of NSW.

44 _Herbert Morris Ltd v Saxelby [1916] 1 AC 688._
[45 C Arup et al., ‘Restraints of Trade: The Legal Practice’, University of New South Wales Law Journal, 2013,](https://www.unswlawjournal.unsw.edu.au/wp-content/uploads/2017/09/36-1-14.pdf)

36(1): 1-29, pp 2-5.

46 A Stewart, Stewart’s Guide to Employment Law, 7th edn, The Federation Press, Australia, 2019, pp 320-321.
[47 A Fell and E Rudz, ‘Employee Non-Compete Restraints: Resolving Uncertainty‘, UNSW Law Journal, 2013,](https://www.unswlawjournal.unsw.edu.au/article/employee-non-compete-restraints-resolving-uncertainty)

46(4) 1252-1283, pp 1257-1261.

48 _Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Cot Pty Ltd (1973) 133 CLR 288; Although note that_

J D Heydon contests whether the proportionality of consideration received by an employee is legitimate on
the question of reasonableness. See Heydon, The Restraint of Trade Doctrine, p 196-199.

49 A Fell and E Rudz, ‘Employee Non-Compete Restraints: Resolving Uncertainty’, 2013, pp 1257-1261.
50 Heydon, The Restraint of Trade Doctrine, p 199; for an example, see Lindner v Murdock’s Garage (1950) 83

CLR 628 at 641, and Sherk v Horwitz [1972] 2 OR 451 at [454]-[456].


-----

##### Business interests that have supported enforceable restraint clauses

Interests considered ‘legitimate’ by courts include the protection of trade secrets or other confidential
information; protection against solicitation of clients with whom the former worker had a personal
connection; and protection against key staff being recruited by a former colleague.[51] An employer is
not entitled to protection themselves against mere competition by a former worker.[52]

Determining what kinds of information can be protected from disclosure and used to enforce a
restraint on a worker after termination is complex and can depend on many factors, including how the
information is stored and used, what the information cost to acquire or is worth and how easily it
could be acquired or duplicated by others.[53]

Although businesses may maintain that information is confidential and make effort to keep the
information secret from disclosure, workers with access to the information as part of their role pose a
practical threat to this secrecy including when changing jobs. The worker may be unable to avoid
remembering the confidential information and be unable to separate potentially confidential
information from their general know-how and experience that they developed during their
employment and would be entitled to use when they left. The worker may be unaware that they are
acquiring information that limits their future job opportunities.

Courts have also determined that businesses can protect their customer and supplier connections[54]
using a restraint of trade clause, and in some cases have argued they afford adequate protection to
protect customer connections of a business in the absence of a non-compete clause.[55] However, there
are exceptions to this broad rule. It is not enough for the worker to simply have contact with the
customer for a non-solicitation restraint to be enforceable. There must be some element of the
worker-customer relationship where the worker has become the human face of the business and
acquires influence over the customer’s business.[56] If the worker acquires influence over or has special
knowledge of the customer due to the seniority of their position, they may also be validly restricted
from dealing with clients of the business that they have not previously dealt with.[57]

In addition to connections with clients and other business contacts, courts in Australia have recently
also held that a business’s interest in a ‘stable workforce’ may justify a reasonable restraint preventing
workers from soliciting their co-workers.[58]

Solicitation of clients, other business contacts and co-workers may apply to a broader range of
conduct than where communication is initiated by the former worker. An injunction against
solicitation may also apply where the customer (or supplier, or co-worker) makes the first approach,
and the former worker reciprocates.[59]

51 Stewart, Stewart’s Guide to Employment Law, 7th edn, pp 320-321.
52 Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; 71 NSWLR 9.
53 A non-exhaustive list of factors is provided by R Dean, The law of trade secrets and personal secrets (2nd

Edn), Lawbook Co., 2002, p 190 quoted by Hodgson JA in Del Casale v Artedomus at [40].

54 Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; 71 NSWLR 9 at [25].
55 Stacks Taree v Marshal [No.2] [2010] NSWSC 77 (McDougal J) at [122], [123].
56 Stacks Taree v Marshal [No.2] [2010] NSWSC 77.
57 Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; 71 NSWLR 9 at [33].
[58 I Ross, ‘Non-compete clauses in employment contracts: the case for regulatory response‘, TTPI Working](https://taxpolicy.crawford.anu.edu.au/sites/default/files/publication/taxstudies_crawford_anu_edu_au/2024-03/complete_wp_i_ross_mar_2024.pdf)

Paper, ANU, 2024, p 17.

59 Stacks Taree v Marshal [No.2] [2010] NSWSC 77 (McDougall J) at [122], [123].


-----

##### Rule of severance and cascading clauses

Courts may ‘sever’ an offending part of an unreasonable restraint to permit the remainder of the
otherwise reasonable restriction to survive. However, outside of NSW (see section below on
‘Restraints of Trade Act 1976 (NSW)’) this ‘blue pencil’ rule only permits a court to strike out words,
not to add words to make the restraint enforceable.

This limitation has encouraged businesses to take a precautionary approach by adopting ‘cascading’ or
‘laddered’ clauses. These are a series of overlapping or cumulative restraints which include multiple
options so that any offending aspects can be struck out, without the entire restraint being held as
unenforceable.

Although cascading clauses have sometimes been held to be void for uncertainty,[60] courts are willing
to apply the blue pencil test if the cascading clause is drafted in sufficiently precise and clear terms,[61]
and a genuine attempt has been made to define the employers need for protection.[62]

The use of cascading clauses and the blue pencil test has been a subject of criticism.[63] Cascading
restraint clauses mitigate the risk of the entire restraint being unenforceable but create significant
uncertainty for workers and businesses. For example, the contract might state that the restraint
applies for a period of 24 or 12 or 6 months. However, it is unclear – without recourse to the court –
which term(s) of the restraint are enforceable as a court will determine each restraint in dispute based
on the particular facts and circumstances. As such workers who want ‘to do the right thing’ or take a
precautionary approach are likely to abide with the broadest formulation of the restraint.

See Box 1 for an example of a cascading clause and the application of the rule of severance.

60 Austra Tanks Pty Ltd v Running (1982) NSWLR 840 (82,152 possible restraints were involved)
61 JQAT Pty Ltd v Storm (1987) 2 Qd R 162.
62 Lloyd’s Ships Holdings Pty Ltd & Anor v Davros Pty Ltd & Ors (1987) ATPR 40-769; Sear v Invocare Australia

Pty Ltd (2007) ATPR 42-149.

63 Ross, ‘Non-complete clauses in employment contracts: the case for regulatory response’; A Stewart,

‘Drafting and Enforcing Post-Employment Restraints’, Australian Journal of Labour Law, 1997, 10(2):
181-221, p 218.


-----

##### Box 1: Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267

This case is an example of the use of cascading clauses for non-solicitation.

Mr Hanna was an experienced insurance broker who commenced employment with OAMPS in
1990. He resigned from OAMPS on 22 April 2010, having accepted an offer to work at another
insurance broking firm.

After Mr Hanna left OAMPS a dispute arose concerning the enforcement of the restraint clauses
in the employment contract. The relevant parts of the restraint clause in the employment
contract were as follows:

_“Restraint Period means, from the date of termination of your employment:_

_(a) 15 months_

_(b) 13 months_

_(c) 12 months_

_Restraint Area means:_

_(a)_ _Australia;_

_(b)_ _The State or Territory in which you are employed at the date of termination_

_of your employment;_

_(c)_ _The metropolitan area of the capital city in which you are employed at the_

_date of termination of your employment._

_Each restraint contained in this Deed (resulting from any combination of the wording above)_
_constitutes a separate and independent provision, severable from the other restraints. If a court of_
_competent jurisdiction finally decides any such restraint to be unenforceable in whole or in part,_
_the enforceability of the remainder of that restraint and any other restraint will not be affected.”_

The NSW Supreme Court found that in Mr Hanna’s case the restraint of 12 months within the
metropolitan area of Sydney was reasonable due to the strong relationships Mr Hanna had
maintained with OAMP’s clients and the fact the length of most insurance policies is 12 months.

The Court found that the clause was not void for uncertainty and the rule of severance allowed
the Court to sever the remaining sub-clauses.


-----

##### Restraints of Trade Act 1976 (NSW)

In NSW, the Restraints of Trade Act 1976 (NSW) (NSW Act) presumes that a restraint of trade is valid
to the extent to which it is not against public policy. The NSW Act permits the court to add new words
into the restraint (rather than only severing words from them) to narrow the restraint to what is
reasonably necessary to protect a legitimate interest. This means that employers in NSW are less likely
to rely on cascading clauses to protect their interests. In practice, this also results in restraints being
more frequently upheld in some form in NSW (56.1 per cent) compared to the average for all other
Australian jurisdictions (33.3 per cent).[64]

Notably, while the law governing a contract is typically the same as the jurisdiction in which the
contract is contested before a court, they can be different under certain circumstances. For example,
this could be where the employer and worker are based outside of NSW, however the employment
contract expressly specifies the choice of law to be NSW.[65]

##### Enforcement in practice

In practice the enforcement of a restraint of trade clause generally starts with the business reminding
the worker of the restraint clause upon resignation or termination, or when the business considers
that a worker has breached a restraint or is about to do so.

It is relatively simple for businesses to identify a potential breach of a non-compete clause, as the
business may only need to know the new employer or business of the former worker. Establishing
breach of a non-solicitation clause can be more challenging, as it requires knowledge and evidence
that the worker actually solicited a client, other business contact or co-worker. Similarly, businesses
may have little way of knowing whether a worker has used or disclosed confidential information in a
new role.

Even though some restraints may be too broad to be backed by law, some businesses may still
attempt to enforce them. Although non-solicitation and non-disclosure clauses may be generally more
targeted by design, they can be drafted more broadly than would be considered proportionate for the
circumstances. In one case study provided by Legal Aid NSW, a worker at a beauty clinic was restricted
for 12 months from soliciting “any person associated with the company”.

Although workers could challenge a restraint in court on the basis that it is unenforceable, the
financial cost of seeking legal advice and the uncertainty associated with legal action can be
prohibitive. Research in the US suggests that a not only a worker’s belief about the possible
enforceability of the clause, but also their belief about the likelihood of legal action and the cost that
entails that can influence their behaviour.[66]

The Competition Review heard from stakeholders that the cost of opposing an injunction at
interlocutory proceedings (i.e. proceedings prior to a final court hearing) is between $50,000 and
$150,000, depending on the complexity of the case. If the case goes to a final hearing, parties could
expect to pay around $300,000 at a minimum and up to $700,000 in some cases. These figures are
broadly consistent with estimates of the cost of legal action in other earlier research.[67] Even if
successful, workers are unlikely to have their full legal costs paid by the business, reducing the

[64 H Chia and I Ramsay, ‘Employment Restraints of Trade: An Empirical Study of Australian Court Judgments’,](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2887821)

Australian Journal of Labour Law, 2016, 29(3):283-304, p 300.

65 See for example, Hawker de Havilland Ltd v Fernandes & Anor (1996) ATPR 41.
[66 E Starr, JJ Prescott and N Bishara, ‘The Behavioural Effects of (Unenforceable) Contracts‘, Journal of Law,](https://repository.law.umich.edu/articles/2543/)

Economics, and Organization 36, no. 3 (2020), p 6.

67 Arup et al., ‘Restraints of Trade: The Legal Practice’, p 18.


-----

incentive to challenge a restraint. However, the costs are greater if there are adverse findings, and
courts more often grant partial, or provisional enforcement at an interlocutory injunction to an
employer, particularly in NSW where courts are empowered to rework the clause.[68]

Businesses may also strategically commence proceedings in court, by filing a statement of claim and
serving a former worker. This can provide an impetus for negotiations and provide a basis for the
parties to seek out of court settlements. Proceedings are discontinued after a settlement is reached.[69]
The Competition Review has heard from employment practitioners that enquiries about restraints of
trade are common but are rarely continue beyond initial letters or reminders to workers as typically
workers adjust their behaviour to avoid further escalation. Of the 115 matters relating to restraints of
trade between 2020 and 2023 dealt with by Legal Aid NSW, only one business was noted as having
commenced proceedings in court against a former worker.

Most cases do not go to trial and are often decided on an urgent interlocutory basis.[70] At the
interlocutory stage, there is a lower evidentiary burden than at a formal trial as the courts are making
urgent and provisional decisions, until the final hearing and determination. Courts ask whether there
is a serious issue to be tried and if so, whether the balance of convenience favours granting the
injunction. The latter requires the employer establishing whether damages are an adequate remedy
and that if the injunction was refused the employer would suffer a greater injury than a worker would
suffer if the injunction was granted.[71] The Competition Review heard that of those restraint of trade
matters which escalate to engaging barristers, fewer than half proceed to court, and only half of those
cases reach interlocutory stage and seldom proceeded to full trial.

The lower evidentiary burden for employers at an interlocutory injunction has been a subject of
criticism, as it can practically act as the final determinant of the matter.[72] There are few cases which
proceed to trial where they can be fully contested on the merits.[73] If the employer makes an arguable
case, the balance of convenience test tends to favour employers since courts generally do not
consider damages awarded after the event an adequate remedy.[74]

Despite this, one Australian study[75] found that, out of 145 judgements including interlocutory
applications between 1989 and 2012, employers were mostly (53.8 per cent) unsuccessful in enforcing
a restraint (see Figure 2).

68 Arup et al., ‘Restraints of Trade: The Legal Practice’, p 20.
69 Arup et al., ‘Restraints of Trade: The Legal Practice’, pp 10-11.
70 Arup et al., ‘Restraints of Trade: The Legal Practice’, p 12; Competition Review stakeholder engagement.
71 Hartleys Limited v Martin [2002] VSC 301 at [24]-[46] for a more detailed discussion on requirements.
72 Ross, ‘Non-compete clauses in employment contracts: the case for regulatory response’; Arup et al.,

‘Restraints of Trade: The Legal Practice’, pp 9-10; J Riley, ‘Sterilising Talent: A Critical Assessment of
Injunctions Enforcing Negative Covenants’, Sydney Law Review, 2012, 34(4):617-636.

73 Ross, ‘Non-compete clauses in employment contracts: the case for regulatory response’.
74 Arup et al., ‘Restraints of Trade: The Legal Practice’, p 10-11.
75 Chia and Ramsay, ‘Employment Restraints of Trade: An Empirical Study of Australian Court Judgments’,

p 300.


-----

###### Figure 2: Enforceability of restraints of trade in Australian courts, 1989 to 2012

Source: Chia and Ramsay, ‘Employment Restraints of Trade: An Empirical Study of Australian Court Judgments’, 2013.

Treasury calculations

Of these unsuccessful cases, 67.9 per cent involved a finding that the restraint was invalid. In the
remaining 32.1 per cent of cases, the restraint was valid, but not enforced, for example because the
employer suffered no damage, or the worker did not in fact breach the restraint. Excluding NSW
(where the court is permitted to rework a restraint to be enforceable), Australia-wide employers were
unsuccessful in 66.7 per cent of cases, with the restraint being found invalid in 78.6 per cent of
unsuccessful cases.

The high number of cases with unenforceable restraints may suggest that businesses and workers are
unclear as to what is likely to be a reasonable restraint. Although the courts do provide an avenue for
businesses and workers to determine the restraint in dispute, it is at significant cost (both financial
and non-financial) which may limit its effectiveness in practice. Data is not available for the much
wider number of restraint clauses that affect worker mobility and outcomes without any interaction
with the court system.


-----

## Impact of restraint of trade clauses on workers, businesses and job mobility

### Non-compete clauses

Non-compete clauses may provide businesses with additional protection of legitimate business
interests above that provided by other restraints or incentives. However, the experience and evidence
that is available in Australia suggests non-compete clauses may have a negative impact on workers,
particularly lower-paid workers, who do not have the resources to challenge a non-compete clause
even if it may be unenforceable. Non-compete clauses also have consequential and broader impacts
on economic growth, competition, wages and innovation.

###### Figure 3: Lifecycle of a non-compete clause

Figure 3 outlines key elements and consequences across the lifecycle of a non-compete clause from
the start of the worker’s relationship with the business, during employment, to when a worker resigns,
and the considerations faced and the options available to businesses to enforce a restraint.


-----

##### Impact on businesses

Non-compete clauses can provide businesses with a way to protect their investment in confidential
information and business relationships that may have been built or acquired over a period of years,
by restricting the job opportunities of their former workers. However, non-compete clauses can
negatively impact on other businesses, particularly in industries experiencing labour shortages as they
operate to limit the potential pool of workers. This has broader impacts on workers, business
dynamism, competition, innovation, productivity and wage growth.

Including a non-compete clause in employment contracts has 2 primary costs: the consideration
(if any) that is paid to the worker for agreeing to the clause, and any legal costs in drafting the
contract.

The value of consideration paid for the clause depends on the relative bargaining power of the
business and the worker and its relative importance as compared to other contractual terms
(e.g. salary, benefits). Relative bargaining power is influenced by how much scope businesses and
workers’ have to hold out from entering an arrangement and seek alternative opportunities. This
dynamic tends to favour businesses as a period of unemployment can be more costly to workers than
the cost of a temporary reduction in labour output for a business. Businesses are also more likely to be
‘repeat players’ in the labour market and have greater negotiating experience and access to relevant
information.[76]

There is some evidence overseas that suggests businesses tend to have relatively greater bargaining
power in the negotiation of non-compete clauses. Evidence from the US found that only 10.1 per cent
of workers reported attempting to negotiate over the terms of their non-compete clause or asked for
additional compensation for the clause, and 86.0 per cent of workers reported that businesses did not
offer them additional benefits in exchange for agreeing to the non-compete clause.[ 77] The US study
found the majority of respondents simply agreed to the non-compete clause – this may be analogous
to the situation in Australia, as the Competition Review heard that many workers in Australia will sign
employment contracts without being fully aware of their terms. It may also be difficult or awkward for
many workers to negotiate terms of their employment contracts, particularly ones which relate to
post-termination restraints as opposed to salary or other benefits of more immediate value, even if
the worker has the resources and capacity to negotiate. Many workers, particularly in non-executive
roles, will be asked to sign a standard employment contract which may be presented as
non-negotiable.

The legal costs to a business of including a non-compete in a contract can be scaled proportionately to
the value of the role; for example, by including a standard clause in lower paid contracts and seeking
legal advice for tailor made clauses when the risk to business interests is higher. Although the cost of
litigation is high, businesses may prefer the relative simplicity of a non-compete clause, since it may be
easier to prove a former worker is working for a competitor than to prove they are using confidential
information or solicited clients. At the same time, proceedings are generally commenced by the
former employer, which means they are well placed to weigh up the costs and benefits beforehand.
These factors support the proliferation of non-compete clauses, since businesses can gain the upside
or benefit from the use of non-compete clauses, at relatively limited cost.

This relative low cost and simplicity of non-compete clauses raises policy concerns about the potential
indiscriminate use beyond that necessary to protect legitimate business interests, particularly given
the imbalance in bargaining power between workers and businesses.[78] Some businesses may

[76 Productivity Commission, Workplace Relations Framework: Volume 1, Australian Government, 2015, p 87.](https://www.pc.gov.au/inquiries/completed/workplace-relations/report)
77 E Starr et al., ‘Noncompete Agreements in the U.S. Labor Force’, 2021 pp 34-48.
78 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 at [566].


-----

strategically use non-compete clauses to maintain a competitive edge by restricting the movement of
workers. Others may include a non-compete clause as a standard contract term, without giving
appropriate scrutiny as to its purpose or if it is objectively necessary. The relatively low cost supports
continued use of non-compete clauses, despite the potentially significant cost to workers, other
businesses, and the wider economy.

Impact on business dynamism and competition

The direct consequence of a non-compete clause is that it hinders competition among businesses: it
disincentivises workers from leaving their current job, creating a barrier to the entry of new
businesses and the expansion of existing businesses. Access to workers with relevant skills are a key
component of a business’s ability to enter a market and expand. A non-compete clause provides a first
mover advantage to incumbent businesses, and later businesses may struggle to attract relevant
workers if they are subject to a non-compete clause.

Studies from the US have shown that start-ups are less likely to form in states with more strict
enforcement of non-compete clauses, and that these start-ups struggle to hire and grow, and
innovate less.[79] However, the recent ABS restraint clause survey[80] suggests employers may not have
experienced significant barrier in attracting talent due to the use of non-competes. When businesses
were asked if potential workers had turned down their job offer because of a non-compete clause
with their existing employer, 82.3 per cent of businesses responded “no”. However, some care is
required as this would not factor in the missed opportunity of potential employees who did not apply
due to the “chilling effect” on mobility from their non-compete clause (see Impact on workers below).

Impact on business training, investment and innovation

Empirical evidence on the long-term economic consequences of non-compete clauses on business
productivity is relatively limited.

Worker mobility in theory has the potential to present a “hold-up problem” that can prevent the
business from efficiently investing in their workers.[81] As a worker acquires more general or
industry-specific information (instead of information that is uniquely valuable to the business), they
become more productive and of greater value to competing businesses which can reap the rewards
without the costs of undertaking the investment in training. In some contexts, workers may prefer to
self-fund their training (e.g. TAFE or university) in return for a higher wage, avoiding any hold-up of
investment.[82]

While in theory there may be a disincentive for a business to invest in a worker, potentially hampering
innovation and productivity, there is no empirical evidence of such a “hold-up problem” in Australia,
or that non-compete clauses are the most efficient solution, should such a problem exist.

[79 M Johnson, M Lipsitz and A Pei, ‘Innovation and the enforceability of non-compete agreements‘, National](https://www.nber.org/papers/w31487)

Bureau of Economic Research NBER) Working Paper, 2023.

80 ABS, ‘Restraint Clauses, Australia, 2023’.
[81 J McAdams, ‘Non-Compete Agreements: A Review of the Literature’, Federal Trade Commission, United](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3513639)

States Government, 2019, p 6.

82 G Becker, Human Capital, 3rd edn, University of Chicago Press, 1993, pp 29-51.


-----

##### Box 2: Use of non-compete clauses to recover upfront costs with new staff 

The Competition Review has heard from some businesses that non-compete clauses reduce the
risk of staff turnover and increase employment tenure, providing businesses confidence that they
can recover the costs of hiring and training workers. Businesses argue that it takes some time to
recover the upfront costs of recruiting, upskilling and certifying a newly hired worker. If a worker
switches relatively quickly to another employer the original business may not be able to recover
these upfront costs.

For some businesses in need of skills not readily available in the market, workers can be recruited
from overseas, which can substantially increase these upfront costs, providing a further incentive
for the business to use a non-compete clause.

At the same time, the Competition Review has also heard that migrant workers can be
particularly restricted and vulnerable when a non-compete clause is used. Migrant workers can
be less aware of their workplace rights in Australia and language barriers may limit them
understanding or challenging the terms or enforceability of their employment contract making
them vulnerable to the use of broad and potentially unenforceable restraints.

Overseas, the net impact of non-compete clauses on training, investment and innovation has been
contested. Proponents argue that non-compete clauses are important for investment in skills and
training, once any theoretical potential ‘hold-up’ problem has been addressed by a non-compete
clause.[83] A similar economic argument is used to justify intellectual property protections which provide
an exclusive right to benefit from a creation for a defined period of time as necessary to encourage
investment.[84]

An alternative critical view of non-compete clauses is that they harm innovation by reducing job
mobility. Under this view, greater worker mobility not only improves the worker’s own productivity
(and consequently wages) by permitting them to start a new business or move between businesses
within the same industry, but also improves the sharing of general industry knowledge, knowhow and
innovation within the industry.[85] Removing barriers and facilitating workers to move to roles where
they are more productive, including by creating new businesses, is crucial for long-term productivity
growth. Entrepreneurship is a major driver of innovation and productivity, and younger businesses
contribute disproportionately to job creation.[86]

It is difficult to measure the net impact of the potential positive benefit from increased investment
and the negative impact from the restriction in the flow of ideas. If workers would receive training in
their job regardless of non-compete clause (for example because other more targeted restraints are
available), then the argument for using non-compete clauses to support investment diminishes.

[83 J Barnett and T Sichelman, ‘The Case for Noncompetes‘, The University of Chicago Law Review, 2020, 87(4),](https://chicagounbound.uchicago.edu/uclrev/vol87/iss4/2/)

p 970.
[See also: J McAdams, ‘Non-Compete Agreements: A Review of the Literature’, p 6.](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3513639)

84 Starr, Noncompete Clauses: A Policymaker’s Guide through the Key Questions and Evidence; See also:

O Lobel, Talent Wants to be free, Yale University Press, 2013, p 32.

[85 O Lobel, ‘Noncompetes, human capital policy & regional competition‘, The Journal of Corporation Law,](https://jcl.law.uiowa.edu/sites/jcl.law.uiowa.edu/files/2021-08/Lobel_Final_Web.pdf)

2021, 45(4), pp 936-942.

[86 OECD, ‘Start-ups and innovative entrepreneurship‘, OECD Science Technology and Innovation Outlook](https://www.oecd-ilibrary.org/docserver/sti_in_outlook-2016-25-en.pdf?expires=1709085890&id=id&accname=guest&checksum=495FB1808768341E89312183607166B7)

2016, OECD, 2016.


-----

Similarly, if workers funded their own training, or drove innovation in the business using their own
built-up experience and relationships, restrictions to the mobility of this human capital and expertise
from the use of non-compete clauses would unnecessarily impede business productivity. However, if
businesses would hold back sharing information or training workers without a non-compete clause,
then the potential argument for them increases. These effects may be different across industries,
businesses and even within businesses.

Several studies have looked at US states that enforce non-compete clauses differently to examine
observable differences in training, investment, and patents (to make inferences about innovation).
One study found that, when comparing a state where non-compete clauses are not enforceable to a
state with average enforcement, business-provided training was higher by 14.7 per cent but wages
were lower by approximately 4.0 per cent.[87] Another study found that an increase in enforcement of
non-compete clauses was associated with an increase in investment in intangible assets of
8.1 per cent, but a reduction in the number of new patents of 16–19 per cent over 10 years, with no
reduction in patent quality or an increase in the use of trade secrets.[88]

Measuring the long-term impact on innovation of a specific policy change to the use of non-compete
clauses can be challenging. One seminal study considered the relative success of the Silicon Valley
technology hub over a comparable hub in Massachusetts and argued that it could be explained by the
unenforceability of non-compete clauses in California. Critics of this study have highlighted the use of
other mechanisms in California to protect innovation and questioned causation given the economic,
legal and technological differences between the 2 hubs over the period.[89]

87 E Starr, ‘Consider This: Training, Wages and the Enforceability of Covenants not to Compete’, Sage

Publications, 2019, 72(4): 783-817, p 793.

88 Johnson et al. ‘Innovation and the enforceability of non-compete agreements’. See also J Jeffers, ‘The

[Impact of Restricting Labour Mobility on Corporate Investment and Entrepreneurship’, 2023.](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040393)

[89 R Gilson, ‘The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and](https://scholarship.law.columbia.edu/faculty_scholarship/992)

[Covenants Not to Compete‘, New York University Law Review, 1999, 74(3):575:629; but see: Barnett and](https://scholarship.law.columbia.edu/faculty_scholarship/992)
Sichelman, ‘The Case for Noncompetes’, pp 978-1008.


-----

##### Impact on workers

Evidence from overseas finds that workers with a non-compete clause have lower job mobility and
bargaining power during employment and experience lower wages growth than workers without a
non-compete clause.[90] However, there is a lack of similar research in the Australian context.

The ‘chilling effect’ on worker behaviour

The impacts of non-compete clauses are exacerbated by the complexity of these clauses, the
uncertainty as to enforceability and the substantial costs associated with challenging or enforcing a
restraint.[91] Australian research has found that, while uncertainty impacts both businesses and workers,
it weighs more heavily on workers who lack the knowledge of court proceedings and decisions, and
the financial, psychological, and reputational resources to bargain and undertake litigation.[92]

This can result in a ‘chilling effect’ on job mobility, where a worker’s beliefs about the enforceability of
a non-compete clause can influence behaviour independent of whether the clause is in fact
enforceable. Evidence from the US suggests workers with non-compete clauses frequently decline job
offers because of it, even in states that do not enforce such restraints. If a worker seeks to change jobs
despite a non-compete clause, the worker is more likely to redirect their job searching towards
non-competitors.[93]

In starting a new business, a worker is most likely to do so in an industry where they have existing
expertise, skills and experience. Non-compete clauses may also therefore have a chilling effect on
entrepreneurialism. This ‘chilling effect’ may also be amplified for migrants with employer-sponsored
visas because they must comply with the terms of their visa, including minimum income and time
periods to change sponsor that increase the difficulty of finding employment outside of their field of
expertise.

Impacts on job mobility and wages in the labour market

Non-compete clauses may have broader labour market impacts, including on workers that decide not
to switch jobs and even those that do not have a non-compete clause. A US study showed that in
states and industries with a higher incidence and enforceability of non-compete clauses, workers,
including those without a non-compete clause, received relatively fewer job offers, had reduced job
mobility and experienced lower wages.[94] The study suggests this is explained by the increased
uncertainty generated by non-compete clauses and asymmetries of information in labour markets,
which increases recruitment and search costs for hiring businesses and workers.

Other international studies that looked at the effect of bans on non-compete clauses found positive or
unclear impacts on broader labour market mobility and wages. Researchers examining the effect of a
ban on non-compete clauses and non-solicitation agreements for tech workers in Hawaii found that it
increased job mobility by around 11.0 per cent and new-hire monthly earnings for tech workers by

[90 M Lipsitz and E Starr, ‘Low-wage workers and the enforceability of noncompete agreements’, Management](https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2020.3918)

Science, 68(1):143-170; N Balasubramanian et al., ‘Locked in? The enforceability of covenants not to
compete and the careers of high-tech workers’, Journal of Human Resources, 2020 58(6); See also Young,
‘Noncompete Clauses, Job Mobility, and Job Quality: Evidence from a Low-Earning Noncompete Ban in
Austria’, which finds that non-compete clauses reduced mobility to better paying jobs but did not increase
workers overall wage growth.

91 Ross, ‘Non-compete clauses in employment contracts: the case for regulatory response’.
92 Arup et al., ‘Restraints of Trade: The Legal Practice’.
93 Starr et al., ‘The Behavioural Effects of (Unenforceable) Contracts’.
94 E Starr et al., ‘Mobility constraint externalities’, Organization Science, 2018, 30(5), p 18.


-----

4.2 per cent, while all worker wages (which includes those that do not have or were not seeking
outside opportunities, and workers that had non-compete clauses not affected by the ban) rose by
0.7 per cent.[95] On the other hand, researchers studying a ban on non-compete clauses for workers
below the median gross-monthly income in Austria found that although it increased job mobility and
wages for those workers that were previously subject to non-compete clauses, a significant impact
was not observed on job-mobility or earnings trends for all workers.[96]

##### Box 3 Impacts on low-income workers 

The Competition Review conducted targeted engagement with legal practitioners, including
low-income legal services Legal Aid NSW and the Employment Rights Legal Service, as well as
business groups. This revealed several instances of broad restraint of trade clauses (including
non-competes) being applied to low-wage workers.

Lack of bargaining power

Legal services noted several instances where workers were not aware of or did not understand
the restraint of trade clause in their contract. In one instance a migrant worker with limited
English skills was asked to sign a 12-month restraint of trade clause and was not provided a copy
of the employment contract translated in his preferred language despite being explicitly
requested. The employer later threatened to sue if the worker worked for a competitor.

Uncertainty and chilling effect

Business groups and lawyers both highlighted the significant uncertainty created by
non-compete clauses, particularly for low-income workers. Even where a worker was informed
that, based on their circumstances, a non-compete clause was unlikely to be enforceable, many
workers were unwilling to risk breaching the restraint. Since lawyers cannot provide guarantees
of legal outcomes, the risk and costs of challenging a clause in court remained too high for many
clients. One business stakeholder noted that many employers may have no intention of enforcing
a restraint and merely use it as a means to discourage staff from resigning.

Business enforcement practices and worker impacts

There were a number of concerning cases of enforcement by businesses. This included:

-  Threats and legal proceedings against workers earning below $45,000, including cleaners,

nurses and hairdressers, with no financial means to challenge the employer. In one case, a legal
action was filed against a teenager on minimum wage.

-  Enforcement of non-competes in cases of toxic and harmful work practices by employers. In

one case a worker experiencing workplace bullying felt like they could not resign from the
workplace, due to their concerns that the broad non-compete was enforceable and would
prevent moving to a similar job nearby.

95 Balasubramanian et al, ‘Locked in? The enforceability of covenants not to compete and the careers of

high-tech workers’, 2020.

96 Young, ‘Noncompete Clauses, Job Mobility, and Job Quality: Evidence from a Low-Earning Noncompete Ban

in Austria’.


-----

##### Other impacts

Impacts on clients and consumers

Clients are also affected by non-compete clauses. Clients that have built a relationship a worker may
not be able to continue that relationship if the worker changes employer. The right of a client to
choose their supplier is important in any market but may be increasingly important in the growing
care economy where personal and sensitive information is used and can be affected by non-compete
and non-solicitation clauses (see Box 4 below). In the US, around 37.0 to 45.0 per cent of physicians
are covered by non-compete clauses, despite the American Medical Association (AMA) Code of
Medical Ethics asserting that they can disrupt continuity of care and may limit access to care.[97]
Similarly, lawyers in the US have, since the 1960s, been prevented from having non-compete clauses
under their rules of professional conduct, with the American Bar Association (ABA) arguing that “an
agreement restricting the right of lawyers to practice after leaving a firm not only limits their
professional autonomy but also limits the freedom of clients to choose a lawyer”.[98]

##### International comparison of regulation of non-compete clauses

The prevalence of worker non-compete clauses (particularly low-income workers), and concerns with
their use and impact on businesses, workers and the broader economy, has resulted in a number of
countries regulating, or considering taking action to regulate, the use of non-compete clauses in
worker agreements. Table 1 below provides a summary of the policy models adopted, within the
broader context of each country’s legal system.

[97 American Medical Association (AMA), ‘AMA backs effort to ban many physician noncompete provisions’,](https://www.ama-assn.org/medical-residents/transition-resident-attending/ama-backs-effort-ban-many-physician-noncompete)

2023.

[98 American Bar Association (ABA), Model Rules of Professional Conduct – Rule 5.6: Restrictions on right to](https://www.americanbar.org/groups/professional_responsibility/policy/ethics_2000_commission/e2k_rule56/)

[practice, 2024.](https://www.americanbar.org/groups/professional_responsibility/policy/ethics_2000_commission/e2k_rule56/)


-----

###### Table 1: International regulation of non-compete clauses

Ban Limited duration Post-employment
mandatory
compensation


Transparency

State-level policy
e.g., Mandatory
disclosure to employees
(various)


United
States

United
Kingdom


Nationwide ban
(proposed)
State-level policy
e.g., Complete ban (5
states, notably
California)


State-level policy
e.g., 12 months
(Oregon)


3 months (proposed) -  Guidance material
(proposed)

Above income - 
threshold: 12 months


Austria Below certain income
threshold1


Finland -  12 months Minimum 40% of
regular salary

Germany -  24 months Minimum 50% of
earnings

Netherlands -  12 months (proposed) Minimum 50% of
earnings (proposed)


Specify protected
interest

Specify protected
interest (proposed)


Spain -  6 months, up to
24 months for technical
employees

Note (1): Around the median income level.

##### Discussion Questions


‘Adequate
compensation’ –
generally between
20 to 70% of earnings


1. Does the common law restraint of trade doctrine strike an appropriate balance between the

interests of businesses, workers and the wider community? If no, what alternative options
are there?

2. Do you think the Restraints of Trade Act 1976 (NSW) strikes the right balance between the

interest of businesses, workers and the wider community? Please provide reasons. If not,
what alternative options are there?

3. Are current approaches suitable for all workers, or only certain types of workers? For

example, senior management, low-income workers, or care workers etc?

4. Would the policy approaches of other countries be suitable in the Australian context? Please

provide reasons.

5. Are there other experiences or relevant policy options (legislative or non-legislative) that the

Competition Review should be aware of?


-----

### Non-solicitation clauses (of clients, other business contacts, co-workers)

##### Impact of non-solicitation clauses

Non-solicitation of clients and other business contacts

There is limited empirical evidence on the impacts of client (or other business contacts)
non-solicitation. However, for businesses, non-solicitation clauses may provide protection to support
efficient worker-client relationships that improve the operation of the business. These clauses may
give businesses more trust and confidence in their workers, making them more likely to invest in and
share client information among workers, as well as giving workers the freedom to directly engage
clients or other business contacts.[99] Client non-solicitation clauses can also support business continuity
when a worker departs by preserving the existing relationships between a business and its clients or
other business contacts.

While client non-solicitation clauses may be considered less restrictive than non-compete clauses for
workers, in some circumstances client non-solicitation clauses can still have comparable impacts on
job mobility. This may be the case within customer-centric industries like real estate agencies or law
firms, especially in rural or regional areas with smaller markets, or where the business has extensive
customer networks. Businesses in smaller, concentrated markets such as these often have
long-standing history and entrenched customer relationships spanning across the entire community
due to the limited geographic area they serve. Consequently, in these scenarios, non-solicitation
clauses, particularly if broadly framed, may function similarly to non-compete clauses, effectively
prohibiting former workers from engaging with any clients associated with the business. This may
result in affected workers choosing to stay due to the barriers to mobility, relocate to find new
employment or seek work in another industry.

Client non-solicitation clauses may also have impacts on the third-party client, leaving them worse off
in some instances. Client non-solicitation clauses can restrict the competition in product markets if
former workers cannot approach former clients – a client may receive a better price offering or higher
quality goods or services if the former worker could compete for that client business. Clients may also
have special needs that only a particular worker understands, such as in the care sector, and the client
may not feel comfortable establishing this relationship with another person (see Box 4).

99 In one Australian example, a business required a worker to sign a non-solicitation agreement before they

could represent the business in meetings with key overseas suppliers. The NSW Court of Appeal upheld a
4-year injunction against soliciting clients, recognising the information about suppliers as confidential, even
if not a trade secret. See: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317.


-----

##### Box 4: Impact of restraint clauses on access to preferred care providers 

While restraints on non-solicitation may be important for businesses to protect connections, this
comes at a direct cost to the quality of services in sectors, including in the care sector, where
there can be significant benefits to people choosing their preferred service provider.

The National Disability Insurance Scheme is designed to give people with a disability the right to
choose who delivers their support and how their support services are delivered and obliges
providers to act with respect for this right.[100] This recognises that providing choice and control,
provides greater support and enhances the well-being of those with a disability.

The Competition Review heard that the use of non-compete and non-solicitation clauses is
prevalent within the disability support sector and within the care economy more broadly, in a
way that may be inconsistent with this right to choose:

-  Legal Aid NSW noted several instances within the last 3 years where employers had threatened

to sue former workers for breach of their restraint clauses after former clients sought to follow
them of their own accord. The clauses were often broadly defined to cover all of Australia for
as long as 24 months. In one matter, the worker resigned from their new job instead of
challenging the restraint.

-  These clauses also appear to be common in the childcare sector, as found by the ACCC at a

series of roundtables for the Childcare Inquiry 2023. The ACCC noted that some operators may
not understand their compliance obligations with industrial law, and some may receive poor
advice from disreputable sources,[101] suggesting they may be using clauses that a court would
find unenforceable.

The presence of non-compete and non-solicitation clauses in the care sector may also exacerbate
worker shortages and persistent low wages in the sector. The Government’s 2023 Draft National
Care and Support Strategy has outlined the Government’s vision for a care and support system
that provides quality care and support, which provides safe and secure jobs, and is productive
and sustainable.[102]

Non-solicitation of co-workers

There is limited empirical research that exists on the impact of co-worker non-solicitation clauses on
businesses and workers. However, for business, non-solicitation of co-worker clauses may promote
the stability of the workforce by reducing turnover and associated costs. These agreements may also
reduce the risk of a business losing its investment in training personnel and allow recoupment of a
greater proportion of investment in training.

Despite this, these clauses have been the subject of criticism as they restrict both the rights of the
former worker to recruit staff, as well as the opportunities of remaining staff to pursue future

100 NDIS Commission, NDIS Code of Conduct – Guidance for NDIS Providers, September 2023.
[101 ACCC, Childcare Inquiry Roundtable Summary, 11 August 2023, p 4.](https://www.accc.gov.au/system/files/Childcare%20inquiry%20-%20Educator%20roundtable%20summary.pdf)
[102 Department of Prime Minister and Cabinet, Draft National Care and Support Economy Strategy, 2023.](https://www.pmc.gov.au/domestic-policy/national-strategy-care-and-support-economy)


-----

opportunities.[103] In one case, an injunction was granted preventing a personal assistant from accepting
a job offer from a previous colleague even though the assistant was not a party to the agreement
which contained the restraint.[104] Despite being affected by a colleague’s co-worker non-solicitation
clause, co-workers are not compensated for the restraint imposed as they are not a party to the
agreement.

Non-solicitation of co-worker clauses may, without limiting the ability to make their own enquiries
about employment opportunities, in practice limit a co-worker’s ability to reach out to networks from
the same business. Studies have established that networks play a key role in reducing information
frictions in the job market, and facilitating job matches,[105] suggesting possible implications on
productivity.

In addition, these clauses may impact business dynamism and competition in the economy. For
example, restricting a worker’s access to former co-workers when starting a new business, may
hamper new business growth. Overseas research finds that co-workers play an important role in
facilitating the creation of new firms by founders[106] and that new firms created by former workers
tend to survive longer when hiring co-workers.[107]

##### Discussion Questions 

_Non-solicitation of clients and other business contacts_

6. What considerations lead businesses to include client non-solicitation in employment

contracts? Are there alternative protections available?

7. Is the impact on clients appropriately considered? Is this more acute in certain sectors, for

example the care sector? Please provide reasons.

_Non-solicitation of co-workers_

8. What considerations lead businesses to include co-worker non-solicitation in employment

contracts? Are there alternative protections available?

9. Is the impact of co-worker non-solicitation clauses more acute for start-ups/new firm

creation or in areas with skills shortages in Australia?

103 Ross, ‘Non-compete clauses in employment contracts: the case for regulatory response’; J Riley, ‘No

“Poaching”? Why Not? A Reflection on the Legitimacy of Postemployment Restrictive Covenants’.
Commercial Law Quarterly, 19(1), 3–8, 2005 at p3.

104 Harleys Ltd v Martin [2002] VSC 301.
[105 A Glitz, ‘Coworker Networks in the Labour Market’, IZA Discussion Paper No. 7392, 2013; F Cingano and A](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2266819)

[Rosolia, ‘People I know: Job Search and Social Networks’, Journal of Labor Economics 30(2): 291-332.](https://www.socialcapitalgateway.org/content/paper/cingano-f-rosolia-2012-people-i-know-job-search-and-social-networks-journal-labor-econ)

106 R Agarwal and B A Campbell, ‘What do I take with me?: The Mediating Effect of Spin-Out Team Size and

Tenure on the Founder-Firm Performance Relationship’, US Census Bureau Center for Economic Studies
[Paper No. CES-WP-13 -17, 2013, Available at SSRN.](https://austreasury.sharepoint.com/sites/ri-function/AusCompConsCommInq/Non-competes%20final%20issues%20paper/Agarwal,%20Rajshree%20and%20Campbell,%20Benjamin%20A.%20and%20Franco,%20April%20and%20Ganco,%20Martin,%20What%20Do%20I%20Take%20with%20Me?:%20The%20Mediating%20Effect%20of%20Spin-Out%20Team%20Size%20and%20Tenure%20on%20the%20Founder-Firm%20Performance%20Relationship%20(April%201,%202013).%20US%20Census%20Bureau%20Center%20for%20Economic%20Studies%20Paper%20No.%20CES-WP-%2013-17,%20Available%20at%20SSRN:%20https://ssrn.com/abstract=2247653%20or%20http://dx.doi.org/10.2139/ssrn.2247653)

[107 V Rocha, A Carneiro, V Celeste, ‘Leaving Employment to Entrepreneurship – The Value of Co-worker](https://research-api.cbs.dk/ws/portalfiles/portal/58770709/Rocha_Carneiro_Varum_DRUID.pdf)

[Mobility in Pushed and Pulled-driven Startups‘, Paper presented at The DRUID 20th Anniversary](https://research-api.cbs.dk/ws/portalfiles/portal/58770709/Rocha_Carneiro_Varum_DRUID.pdf)
Conference, Denmark, 2016.


-----

### Non-disclosure clauses

##### Impact of non-disclosure clauses

Little empirical research has been identified on the impacts on workers and businesses of
non-disclosure clauses which restrict former workers disclosing the confidential information of the
business. However, for businesses, non-disclosure clauses may facilitate investment and innovation by
providing assurance that workers cannot disclose unique processes, technologies or strategies.

In the context of estimating the marginal impact of more restrictive covenants, non-disclosure clauses
have been associated with higher wages in the United States albeit without establishing a causal
link.[108]

Non-disclosure clauses may if not reasonably confined, be hindering the flow of information that
should not be restrained and may limit some workers’ opportunities by restricting their ability to use
their know-how and experience in other roles. This limitation not only detrimentally affects workers,
but also presents challenges for businesses, potentially narrowing their access to a diverse pool of
talent.

Although non-disclosure clauses may be more targeted than other restraint clauses, the design
non-disclosure clauses can disrupt economic efficiency. This includes by:

-  unintentionally disrupting the free movement of workers and non-confidential know-how as a

byproduct of protecting highly valuable know-how and trade secret, which can prevent the best
allocation of business inputs, hampering economic growth; and

-  imprecisely defining the confidential information intended to be protected from disclosure, which

creates uncertainty that can simultaneously result in workers not knowing what information they
are allowed to use, while also potentially reducing the likelihood of successful court enforcement
of a restraint.[109]

##### Discussion Questions 

10. What considerations drive businesses to include non-disclosure clauses in employment

contracts? Are there alternative protections, such as s183 of Corporations Act 2001 available?

11.How do non-disclosure agreements impact worker mobility?

12.How do non-disclosure agreements impact the creation of new businesses?

108 N Balasubramanian, E Starr & S Yamaguchi, ‘Employment restrictions on resource transferability and value

appropriation from employees’, SSRN working paper, 2024.

109 Courts in Australia, particularly Victoria, have been firm on the requirement to be precise in cases relating

to confidentiality: see C Arup, ‘What/Whose Knowledge? Restraints of trade and concepts of knowledge‘,
_Melbourne University Law Review 36(2), 2012; also GlaxoSmithKline Australia Pty Ltd v Ritchie (2008) 77 IPR_
306; and Manderson M & F Consulting v Incitec Pivot (No 2) [2011] VSC 205.


-----

## Restraints on workers during employment 

Restraints placed on workers during their employment may be justified to uphold the worker’s duty of
fidelity, as it is generally accepted that, whether written into contract or not, workers have a common
law duty to serve their employer ‘faithfully’[110] as long as an employment contract subsists.[111] This duty
of fidelity is most concerned with conduct involving acts of competition against the employer,[112] and
clear breaches of this duty would include running a competing business while still employed or
working for another employer in the absence of permission.[113]

It is generally accepted that a fiduciary duty exists for more senior workers with managerial
responsibilities,[114] and to satisfy these duties, a worker should not profit at the expense of their
employer. For example, if a business opportunity presents itself to a worker, they should bring it to
their employer’s attention rather than pursuing it for themselves without their employer’s consent.[115]
This restriction on more senior workers may be justified due to the fact there are more opportunities
for them to profit from their position at the expense of the employer. It is less clear however whether
the same fiduciary duties apply to less senior employees.

##### Box 5: Case study – Casual brow specialist and lash technician*

A worker employed as a casual brow specialist and lash technician was paid a base rate of
$28.58 per hour with penalty rates applying on weekends and public holidays.

During her employment, to supplement her income, she decided to establish her own at-home
business. When her employer became aware of this business, she was called into a disciplinary
meeting and made aware of her non-compete restraints. She received a cease-and-desist letter
from her employer and subsequently resigned seeking legal advice.

The worker was a young single parent and was unaware of the restraints placed upon her and as
she had previously worked in the hospitality industry where it is common to work for more than
one business.

_*Anonymised case study provided by an employment legal service._

##### Part time, casual and gig workers

Businesses may have justifications for placing these restrains on workers during employment,
however, they can disproportionately impact workers in part-time, casual or gig roles – an issue that
was raised with the Competition Review during consultations. Often these roles are not able to offer a
worker a living wage, and these workers must resort to supplementing this income through multiple
jobs or streams of income. For these workers, the non-compete clause creates a barrier to working
more by holding multiple jobs. Multiple job holdings can also allow for the development of workers’

110 See Blyth Chemicals v Bushnell [1933] HCA 8 49 CLR 66; Concut Pty Ltd v Worrell (2000) 75 ALJR 312,

[25]-[26], [57].

111 Mason Gray Strange Ltd v Eisdell (1989) 31 AILR 271.
112 M Irving, the Contract of Employment (Lawbook Co, 2012) 415-430.
113 See Harris v Digital Pulse Ltd [2003] NSWCA 10; Dinte v Hales & Anor [2009] QSC 63.
114 A Stewart, Stewart’s Guide to Employment Law, 7[th] edn, p 312.
115 _Victoria University of Technology v Wilson [2004] VSC 33._


-----

skills which can further stimulate job mobility and entrepreneurial activity.[116] At an aggregate level,
these restrictions contribute to underemployment and underutilisation of capacity in the economy.

However, workers are engaged in part-time or variable hours across more than one competing
business raises questions relating to fiduciary duties and duties of fidelity and has the potential to
create the risk of co-operative behaviour that may be anti-competitive and illegal. However, the
extent of this risk could depend on the level of seniority and access to information a person has within
their respective workplaces.

##### Discussion Questions

13.When is it appropriate for workers to be restrained during employment?

14. Is it appropriate for part-time, casual and gig workers to be bound by a restraint of trade

clause?

[116 K Pouliakas, ‘Multiple job-holding: Career pathway or dire straits’ IZA World of Labor, 2017, p 1.](https://wol.iza.org/uploads/articles/356/pdfs/multiple-job-holding-career-pathway-or-dire-straits.pdf)


-----

## No-poach and wage-fixing agreements

No-poach and wage-fixing agreements between businesses limit hiring competition among employers,
directly impacting workers ability to seek new and better employment outcomes and reducing
competition between businesses in downstream product markets. This has consequential and broader
impacts on economic growth, innovation, and investment. Unlike a non-compete clause or other
restraints included in an employment contract, affected workers are typically unaware and not
compensated for these agreements which are made between the businesses themselves.

No-poach and wage-fixing agreements are discussed together in this section as although they place
restrictions on different aspects of the labour market, they operate in a similar way as they involve
coordination between businesses over employment conditions and they may have similar effects on
wages and employment opportunities in practice. Both the existing literature and international
organisations such as the OECD,[117] treat these agreements similarly as coordinated agreements
between competitors that distort competition in the recruitment and employment for labour.
Additionally, in other jurisdictions, both no-poach and wage-fixing are regulated on a similar basis.

### No-poach agreements

No-poach agreements can involve 2 or more businesses agreeing to refrain from actively recruiting
each other’s workers or to complete prohibitions on hiring each other’s workers.

One reason for businesses to use no-poach agreements is to maintain a stable workforce and to
reduce worker turnover and associated costs. These costs are in addition to the risk that other
business interests such as release of confidential information or client and other business contacts
that might be harmed through the loss of an experienced worker – although it may be possible to
protect these interests through non-disclosure or non-solicitation clauses with workers.

These costs can be particularly acute when, after having recruited and trained a worker, a competing
business with demand for similarly skilled workers attracts the worker to move jobs. The competing
business can afford to do this, since they do not have to pay for the costs of finding and training a
suitable worker.

No-poach agreements are expected to emerge in 3 different kinds of contexts:

-  Horizontal, or ‘naked’ context: they may arise when unrelated businesses that are often

competitors in the same goods or services market (e.g., both businesses are mining companies) are
competing for the same pool of talent in the labour market. Since these agreements would likely
be highly unpopular among affected workers at the affected businesses, these agreements may be
unwritten “gentleman’s agreements”, such as the one between several animating businesses
including Walt Disney Animation Studios and DreamWorks.[118]

-  They may also emerge in other contexts, where they are related to another business transaction

where staff are working quite closely together. This includes:
– Joint venture agreements, where workers from 2 or more businesses (which may ordinarily be

competitors) work together in a new enterprise. No-poach agreements between franchisee and
franchisor (instead of between franchisees) may be considered alike the extent that they
protect important aspects of the franchise brand shared between the 2 parties.[119]

[117 OECD, Competition in Labour Markets, p 28.](https://web-archive.oecd.org/2020-03-10/546723-competition-in-labour-markets-2020.pdf)
118 Nitsch v DreamWorks Animation SKG Inc, [2015] N.D. Cal 14-cv-04062.
[119 OECD, Competition in Labour Markets, 2020, p 30.](https://web-archive.oecd.org/2020-03-10/546723-competition-in-labour-markets-2020.pdf)


-----

– Secondment arrangements and other business-to-business service agreements where a worker

from one business works at another workplace. The other business could observe the worker’s
performance and attempt to recruit the worker, which may result in businesses being less
willing to enter into such secondment or other arrangements.

– Labour hire businesses that incur the cost of finding workers to contract out to another

business. A no-poach agreement would prevent the business from directly hiring the worker
after the labour hire business has contracted them out, thereby avoiding any recruitment and
training costs associated with finding the worker.

-  Within franchises, where a franchisor may facilitate an agreement between franchisees not to

poach the staff of other franchisees under the same brand. In this context, although they are a
vertical arrangement between related business entities, they have horizontal impacts by limiting
intra-brand competition for labour between franchisees.

### Wage-fixing agreements

Wage-fixing agreements can involve 2 or more businesses agreeing to set a cap on wages and
employment conditions (such as health benefits, or non-statutory leave entitlements) for their
workers. This may include agreements to pay a specific wage to workers, but they can also include
agreements regarding the absolute or relative compensation that workers receive. For example,
businesses may have an agreement to cap bonuses at 5 per cent of their salary.

Like a no-poach agreement, businesses may use wage-fixing agreements to reduce their wage costs
and worker turnover. Businesses have an interest in avoiding rising wages and a ‘race to the top’
situation where they face high staff turnover and must offer workers increasingly higher remuneration
to retain and attract staff.

Similar to no-poach agreements, wage-fixing agreements can also arise in various contexts. They may
arise in a horizontal, ‘naked’ context. An example of this was 4 managers of home health care agencies
in the US agreeing to fix the rate paid to essential workers during COVID-19.[120] They may also apply in
instances where they are facilitated by a related third party but have horizontal impacts. For example,
in the US a trade association that acted on behalf of most hospitals in Arizona to provide them
temporary nursing services, set a uniform bill rate schedule with the agreement of its members that
the hospitals would pay the temporary nurses.[121] Similarly, a franchisor may also facilitate agreement
of standard wages and employment conditions that would limit labour market competition between
franchisees.

In some contexts, agreements between businesses may promote the mobility of workers, such as
where businesses agree to the portability of long-service or other leave entitlements.

### Prevalence

It is difficult to estimate the prevalence of either no-poach or wage-fixing agreements in the economy
as these agreements are often made in secret and may be unwritten. Even if not unlawful, businesses
will typically avoid publicising these arrangements if they impose a cap (as opposed to a floor) on
worker wages (and other benefits). Consequently, there is limited evidence of their use. However,
these agreements are more likely to exist where there are relatively few employers (that is, where the

[120 DoJ (Department of Justice), Office of Public Affairs, Four Individuals Indicted on Wage Fixing and Labour](https://www.justice.gov/opa/pr/four-individuals-indicted-wage-fixing-and-labor-market-allocation-charges)

[Market Allocation Charges, United States Government, 2022.](https://www.justice.gov/opa/pr/four-individuals-indicted-wage-fixing-and-labor-market-allocation-charges)

[121 DoJ, Anti-trust Division, U.S. and State of Arizona v. Arizona Hospital and Healthcare Association and AzHHA](https://www.justice.gov/atr/case/us-and-state-arizona-v-arizona-hospital-and-healthcare-association-and-azhha-service-corp)

[Service Corp., United States Government, 2007.](https://www.justice.gov/atr/case/us-and-state-arizona-v-arizona-hospital-and-healthcare-association-and-azhha-service-corp)


-----

transaction costs to collude are lower), which are also likely the labour markets where workers may
already face issues arising from concentrated business market power.

No-poach clauses appear to be frequently included in franchise agreements. A 2016 study in the US
examined franchising agreements for 156 of the largest franchise chains and found that around
58.0 per cent of them contained no-poach restrictions.[122] The study also found that no-poach
agreements are more common in low-wage and high-turnover industries.[123]

In Australia, franchises such as McDonald’s, Bakers Delight and Domino’s reported using no-poach
clauses as a standard term in their franchise agreements, preventing franchisees from hiring workers
from other stores within the chain.[124] Data from the Franchise Disclosure Register suggests that
89.9 per cent of all franchisors impose some kind of restraint of trade on franchisees.[125] However,
details on the specific type of restraint are limited, such as whether these restraints impact workers
(e.g. no-poach agreements), intra-brand competition (non-compete clauses between franchises), or
overall business dynamism (non-compete clauses post termination of the franchise relationship).

### Enforcement and regulation of no-poach and wage-fixing agreements

The starting point for analysis of no-poach and wage-fixing agreements is that they are an agreement
to fix prices (no-poach agreements indirectly reduce the price of labour by reducing demand for
specific workers) and are therefore anticompetitive agreements. These agreements operate in the
same way as a seller’s cartel that coordinates action to increase prices of output for the mutual profit
of its members.

In Australia, cartels are prohibited under Part IV of the Competition and Consumer Act 2010 (Cth)
(CCA) and the Competition Codes of the states which extend the operation of Part IV to all persons in
Australia.[126] However, Part IV contains exemptions for certain anti-competitive agreements
including:[127]

-  Acts done or any provision of a contract, arrangement or understanding to the extent that it relates

to the remuneration, conditions of employment, hours of work or working conditions of
employees.

-  Any provision of a contract of service or a contract for the provision of services where the service

provider is not a body corporate (i.e., an independent contractor), where the person agrees to
accept restrictions to their work during or after termination of the contract.

[122 A Krueger and O Ashenfelter, ‘Theory and Evidence on Employer Collusion in the Franchise Sector’, NBER](https://www.nber.org/papers/w24831)

Working Paper Series, 2018.

123 Krueger and Ashenfelter, Theory and Evidence on Employer Collusion in the Franchise Sector.
[124 A Leigh, ‘How uncompetitive markets hurt workers‘, Australian Journal of Labour Economics, 2023, 26(1),](https://ajle.org/index.php/ajle_home/article/view/159)

p 16.

125 Prevalence of the use of restraints of trade as of November 2023. Franchisors may provide a standard

[franchise agreement on the Franchise Disclosure Register, which can provide relevant information to](https://franchisedisclosure.gov.au/Register)
existing and prospective franchisees. As at March 2024, template agreements were available for around
150 of 1812 franchises listed on the Register.

126 Competition Policy Reform (New South Wales) Act 1995; Competition Policy Reform (Victoria) Act 1995;

Competition Policy Reform (Queensland) Act 1995; Competition Policy Reform (South Australia) Act 1995;
Competition Policy Reform (Western Australia) Act 1995; Competition Policy Reform (Tasmania) Act 1995;
Competition Policy Reform (Northern Territory) Act 1995; Competition Policy Reform (Australian Capital
Territory) Act 1995.

127 Competition and Consumer Act 2010 (Cth), s 51(2).


-----

A number of reviews into Australian competition policy and workplace relations have concluded that
the negotiation and determination of employment terms and conditions are best dealt with under the
_Fair Work Act 2009, as labour markets are generally treated differently to other markets for goods and_
services.[128]

The effect of these exemptions and other aspects of the legislation is that the Australian Competition
and Consumer Commission (ACCC) may not have jurisdiction to deal with agreements or aspects of
agreements that relate to working conditions for employees and independent contractors.
Consequently, even if 2 competitors agree to fix and supress the wages and other conditions of their
workers the ACCC, unlike its international counterparts, may not be able to take enforcement
action.[129]

Instead, these agreements are dealt with under the common law on restraints of trade. However, in
general, at common law, third parties injured by contracts in restraint of trade have no remedy.[130]
Thus, workers impacted by a no-poach or wage-fixing agreement, even if they had the awareness of
such agreements or the financial resources to challenge them, do not have standing to bring an action
against their employer as they are not a party to the agreement. Unless the worker’s new employer
seeks to challenge the agreement there may be few legal avenues available to workers to challenge
their use.

An Australian court recently found, in an interlocutory application, that there was a prima facie case
that a no-poach agreement between 2 businesses was enforceable and granted an injunction
restraining one of the businesses from employing the employee until final determination of the
proceedings.[131] In that case, one business had contracted out an employee to the premises of another
business as part of a service agreement. The case did not proceed to a final hearing.

### Impact of no-poach and wage-fixing agreements

The OECD considers collusion, typically in the form of no-poach and wage-fixing arrangements, to be
the most detrimental anti-competitive practice in labour markets.[132] Businesses coordinating to set
prices or to not compete for staff effectively increases their market power and deprives workers of
new job opportunities and the ability to increase their wage and/or conditions. This can also create a
‘lock-in’ effect on workers, specifically highly specialised workers, by reducing the expected wage of
the best alternative employer and reducing their bargaining power to negotiate for higher wages with
their current employer. If the reduction in wages is substantial enough, workers – even those with a
great deal of relevant professional experience and education – may have to seek employment in
alternative industries to find a higher paying job. This diminishes the value of the worker’s
accumulated human capital if it is no longer being used in its most productive industry.[133]

In addition, no-poach agreements can suppress a worker’s ability to move to a role with a different
employer that is a more suitable match and a more productive allocation of their labour. Wage-fixing
agreements work analogously by suppressing the potential gains from moving jobs, reducing the

[128 I Harper et al., Competition Policy Review, Final Report, Australian Government, 2015; F Hilmer, M Rayner](https://treasury.gov.au/publication/p2015-cpr-final-report)

and G Taperel, National Competition Policy, National Competition Policy Review, 1993; National
Competition Council, Review of sections 51(2) and 51(3) of the Trade Practices Act 1974, 1999; Productivity
Commission, Workplace Relations Framework, Productivity Commission Inquiry Report Vol 2 No. 76, 30
November 2015.

[129 R Sims, Meeting expectations: Industrial relations as a case study speech, ACCC, 14 August 2015.](https://www.accc.gov.au/about-us/media/speeches/meeting-expectations-industrial-relations-as-a-case-study-speech)
130 Heydon, The Restraint of Trade Doctrine, p 301.
131 Quantum Services and Logistics Pty Ltd v Schenker Australia Pty Ltd [2019] NSWSC 2.
132 OECD, Competition in Labour Markets, p 28.
133 Davis et al., ‘No-poach agreements – Closing the enforcement gap’, pp 8-11.


-----

incentive for workers to search for more productive roles. Increases to a worker’s productivity
improves their bargaining position to demand commensurately higher wages. Despite being
favourable to the original employer by reducing their fixed costs associated with staff turnover,
suppressing this improved match is harmful to the overall economy by reducing economic output –
which could conceivably result in reduced employment and higher prices for goods and services.[134 ]

One justification for no-poach and wage-fixing agreements is that they may provide employers an
incentive to invest more into the training and development of their personnel. A no-poach agreement
limits the number of prospective employers for a given worker, decreasing the likelihood they will
depart their current business. In this sense, no-poach agreements reduce the business’ risk of losing
their investment in training personnel and allows recoupment of a greater proportion of investment in
human capital.[135] Although each business will lose the benefit of attracting experienced workers (and
may face increased costs to train new staff), this may be offset by reduced turnover costs and
ultimately by reduced remuneration of workers.

However, despite these benefits to employers, wage-fixing agreements are recognised to promote
anti-competitive behaviour on the basis that they artificially reduce workers’ wages and decrease
competition between employing businesses, which may result in reduced output or less innovation.[136]
The standardisation of wage levels also reduces the strategic uncertainty that characterises
competition and may promote price coordination in the downstream markets.[137]

In the same way that evidence on the prevalence of no-poach and wage-fixing agreements is scarce,
there are few measurements of the impact of these agreements on wages and other outcomes, due
to the secrecy of these arrangements. However, there is an emerging body of research demonstrating
that no-poach agreements have the effect of limiting hiring competition among employers, resulting
in worse worker outcomes such as lower wages and fewer benefits.[138]

Some studies have been able to estimate the impacts of no-poach agreements. An analysis
investigating the impact of no-poach agreements revealed that such agreements among Silicon Valley
businesses led to an estimated 4.8 per cent reduction in worker salaries, with stock bonuses and
ratings of job satisfaction also negatively affected.[139] No-poach agreements can also have detrimental
effects on workers in lower paid industries. In the fast-food franchise sector in the US, where there is a
known prevalence of no-poach agreements and government investigation and litigation to curb these
agreements, studies have shown the removal of these agreements was estimated to have increased
average wages of job postings for roles in the affected businesses by 5-6 per cent and increased the
overall earnings of workers in those businesses by around 4 per cent.[140]

134 Davis et al., ‘No-poach agreements – Closing the enforcement gap’, pp 8-11.
[135 Autoridade da Concorrencia (AdC, Portugese Competition Authority), Labour market agreement and](https://www.concorrencia.pt/sites/default/files/Issues%20Paper_Labour%20Market%20Agreements%20and%20Competition%20Policy.pdf)

[competition policy – Issues Paper – Final Version, September 2021.](https://www.concorrencia.pt/sites/default/files/Issues%20Paper_Labour%20Market%20Agreements%20and%20Competition%20Policy.pdf)

[136 J M Taladay and V Mehta, ‘Criminalization of wage-fixing and no-poaching agreements’, Competition Policy](https://www.pymnts.com/cpi_posts/criminalization-of-wage-fixing-and-no-poaching-agreements-2/)

International, 2017.

[137 Konkurrensverket (Swedish Competition Authority), Joint Nordic report – Competition and Labour Markets,](https://www.konkurrensverket.se/globalassets/dokument/informationsmaterial/rapporter-och-broschyrer/nordiska-rapporter/nordic-report_2024_competition-and-labour-markets.pdf)

2024.

[138 F Lafontaine, S Saatvic and M Slade, No-Poaching Clauses in Franchise Contracts: Anticompetitive or](https://deliverypdf.ssrn.com/delivery.php?ID=675084119021007013097027117112067122024006056079005030120081092022112108009099064123124060121106033007109029000114106023070119107006090023002096025127105099098016118063082019111098094030125092123091114000112030029000127005085031069086117086004105020094&EXT=pdf&INDEX=TRUE)

[Efficiency Enhancing?, 2023.](https://deliverypdf.ssrn.com/delivery.php?ID=675084119021007013097027117112067122024006056079005030120081092022112108009099064123124060121106033007109029000114106023070119107006090023002096025127105099098016118063082019111098094030125092123091114000112030029000127005085031069086117086004105020094&EXT=pdf&INDEX=TRUE)

139 M Gibson, ‘Employer Market Power in Silicon Valley’, IZA Discussion Paper No. 14843, 2021.
[140 F Lafontaine, S Saatvic and M Slade, No-Poaching Clauses in Franchise Contracts: Anticompetitive or](https://deliverypdf.ssrn.com/delivery.php?ID=675084119021007013097027117112067122024006056079005030120081092022112108009099064123124060121106033007109029000114106023070119107006090023002096025127105099098016118063082019111098094030125092123091114000112030029000127005085031069086117086004105020094&EXT=pdf&INDEX=TRUE)

[Efficiency Enhancing?, 2023; B Callaci et al., The Effect of Franchise No-Poaching Restrictions on Worker](https://deliverypdf.ssrn.com/delivery.php?ID=675084119021007013097027117112067122024006056079005030120081092022112108009099064123124060121106033007109029000114106023070119107006090023002096025127105099098016118063082019111098094030125092123091114000112030029000127005085031069086117086004105020094&EXT=pdf&INDEX=TRUE)
[Earnings, IZA Institute of Labor Economics discussion paper, 2023, Abstract.](https://docs.iza.org/dp16330.pdf)


-----

### International regulation and enforcement: no-poach and wage-fixing agreements

No-poach and wage-fixing agreements have been subject to increasing regulatory scrutiny overseas,
given their impact on competition:

-  In the US, in 2007, the Department of Justice (DOJ) successfully settled enforcement action against

a wage-fixing agreement in the healthcare sector.[141] The DOJ also settled an enforcement action in
2010 and 2012 against a group of Silicon Valley companies including Apple, Google, Pixar, Adobe,
eBay and Intel not to recruit or solicit each other’s software and animation engineers.[142] In 2016,
the DOJ issued guidance warning employers that no-poach and wage-fixing agreements would be
prosecuted criminally,[143] and has pursued 7 such criminal cases since 2020.F[144]

-  In 2015, A US court awarded each worker affected by a no-poach agreement between Adobe,

Apple, Google and Intel $5,770 as part of the class action settlement.[145]

-  In Europe, the European Commission has expressly included wage-fixing agreement as per se illegal

in its 2023 Horizonal Antitrust Guidelines.[146] The European Commission has also recently carried
out raids for suspected cartel infringements relating to no poach agreements in the online food
delivery sector.[147] In addition, France,[148] the Netherlands,[149] Portugal,[150] Switzerland,[151] and other
European countries have taken enforcement action against no-poach and wage-fixing
agreements.[152]

-  In 2023, the UK Competition and Markets Authority (CMA) issued advice to employers to avoid

anticompetitive practices, including no-poach and wage-fixing agreements, which are considered
to be examples of business cartels.[153] This was preceded by a CMA civil cartel investigation in 2022

[141 U.S. and the State of Arizona v. Arizona Hospital and Healthcare Association and AzHHA Service Corp [2007]](https://www.justice.gov/atr/case/us-and-state-arizona-v-arizona-hospital-and-healthcare-association-and-azhha-service-corp)

D Ariz CV 07-1030-PHX.

[142 United States v Adobe Systems Inc, et al [2010] D.D.C 1:10-cv-01629; United States v Lucasfilm Ltd, [2010]](https://www.justice.gov/atr/case-document/file/483426/download)

[D.D.C 1:10-cv-02220; United States v eBay Inc, [2012] N.D. Cal 12-cv-05869.](https://www.justice.gov/atr/case-document/file/494626/download)

[143 DoJ Antitrust Division and Federal Trade Commission, Antitrust Guidance for Human Resource](https://www.ftc.gov/legal-library/browse/antitrust-guidance-human-resource-professionals-department-justice-antitrust-division-federal-trade)

[Professionals, United States Government, October 2016, pp 3-4.](https://www.ftc.gov/legal-library/browse/antitrust-guidance-human-resource-professionals-department-justice-antitrust-division-federal-trade)

[144 J Kanter, Testimony Before the Senate Judiciary Committee Hearing on Competition Policy, Antitrust, and](https://www.justice.gov/d9/testimonies/witnesses/attachments/2023/02/03/doj_antitrust_division_written_statement_kanter_09.20.22.pdf)

[Consumer Rights, Assistant Attorney General, DoK Antitrust Division, United States Government, September](https://www.justice.gov/d9/testimonies/witnesses/attachments/2023/02/03/doj_antitrust_division_written_statement_kanter_09.20.22.pdf)
2022, p 8; the DOJ has subsequently pursued an indictment in a seventh, ongoing, case, see: United States
v. Lopez [2023], D. Nev, 23-cr-00055.

[145 Re: High-Tech Employee Antitrust Litigation [2015] D.D.C 11-CV-02509.](https://www.cand.uscourts.gov/filelibrary/1636/Doc-1111-ORDER-GRANTING-PLAINTIFFS.pdf)
[146 European Commission, ‘Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the](https://competition-policy.ec.europa.eu/document/download/fd641c1e-7415-4e60-ac21-7ab3e72045d2_en?filename=2023_revised_horizontal_guidelines_en.pdf)

[European Union to horizontal co-operation agreements ‘, 1 June 2023.](https://competition-policy.ec.europa.eu/document/download/fd641c1e-7415-4e60-ac21-7ab3e72045d2_en?filename=2023_revised_horizontal_guidelines_en.pdf)

[147 European Commission, ‘Antitrust: Commission carries out unannounced inspections in the online food](https://ec.europa.eu/commission/presscorner/detail/en/ip_23_5944)

[delivery sector’, Press Release, 21 November 2023.](https://ec.europa.eu/commission/presscorner/detail/en/ip_23_5944)

[148 Cour D’Appel De Paris [Paris Court of Appeal], 2016/22365, 29 September 2016. In this case the Autorite de](https://www.autoritedelaconcurrence.fr/sites/default/files/2019-08/ca_16d20.pdf)

la concurrence (French Competition Authority) fined 37 modelling agencies for anti-competitive practices
relating to wages of models in France.

[149 Authority for Consumers and Markets (Dutch competition authority), ACM suspends investigation into](https://www.acm.nl/en/publications/acm-suspends-investigation-possible-wage-fixing-cartel-between-supermarkets-after-conclusion-collective-agreement#:~:text=of%20collective%20agreement-,ACM%20suspends%20investigation%20into%20possible%20wage%2Dfixing%20cartel%20between%20supermarkets,2.5%20percent%20for%20their%20employees.)

[possible wage-fixing cartel between supermarkets after conclusion of collective agreement, November](https://www.acm.nl/en/publications/acm-suspends-investigation-possible-wage-fixing-cartel-between-supermarkets-after-conclusion-collective-agreement#:~:text=of%20collective%20agreement-,ACM%20suspends%20investigation%20into%20possible%20wage%2Dfixing%20cartel%20between%20supermarkets,2.5%20percent%20for%20their%20employees.)
2021.

[150 Autoridade da Concorrencia (AdC, Portugese Competition Authority), AdC issues sanctioning decision for](https://www.concorrencia.pt/en/articles/adc-issues-sanctioning-decision-anticompetitive-agreement-labor-market-first-time)

[anticompetitive agreement in the labor market for the first time, April 2022.](https://www.concorrencia.pt/en/articles/adc-issues-sanctioning-decision-anticompetitive-agreement-labor-market-first-time)

[151 Secretariat of the Competition Commission, Secretariat of the Competition Commission (COMCO)](https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-92044.html)

[investigates the labour market in the banking sector, 5 December 2022.](https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-92044.html)

[152 Davis et al., ‘No-poach agreements – Closing the enforcement gap’, p 3.](https://www.concurrences.com/en/review/issues/no-4-2023/on-topic/no-poach-agreements-closing-the-enforcement-gap)
[153 CMA, Employers advice on how to avoid anti-competitive behaviour, UK Government, 9 February 2023.](https://www.gov.uk/government/publications/avoid-breaking-competition-law-advice-for-employers/employers-advice-on-how-to-avoid-anti-competitive-behavior)


-----

into concerns of wage-fixing by UK broadcasters.[154] Identifying potential competition issues within
UK labour markets and actively pursuing collusive behaviour that affects household incomes is one
of the CMA’s 2023-2024 strategic priorities.[155]

-  In 2023, Canada prohibited certain no-poach and wage-fixing agreements under existing criminal

and civil competition law prohibitions, (which includes severe criminal sanctions of up to 14 years
in prison on conviction) given the potential for these agreements to undermine competition like
any other price-fixing agreement between competitors.[156] The reforms followed public scrutiny of
the appropriateness of possibly co-ordinated increases to grocery worker wages during COVID. F[157]

##### Discussion Questions 

15. Should there be a role for no-poach and wage-fixing agreements in certain circumstances, for

example:

a) If the agreement is between unrelated businesses (e.g., competitors)?

b) If agreement is between businesses that are co-operating in some way (e.g., joint

venture partners)?

c) If it is part of a franchise agreement, either horizontally (where franchisees through a

common agreement do not to poach each other’s staff) or vertically (where franchisors
make agreements with each franchisee)?

16. Are there alternative mechanisms available to businesses to reduce staff turnover costs

without relying on an agreement between competitors?

17. Should any regulation of no-poach and wage-fixing agreements that harm workers be

considered under competition law as an agreement between businesses (for example
reconsidering the current exemption), or under an industrial relations framework?

18. Should franchisors be required to disclose the use of no-poach or wage-fixing agreements

with franchisees?

19. Are there lessons Australia can learn from the regulatory and enforcement approach of

no-poach and wage-fixing agreements in other countries?

[154 CMA, Suspected anti-competitive behaviour relating to freelance and employed labour in the production](https://www.gov.uk/cma-cases/suspected-anti-competitive-behaviour-relating-to-the-purchase-of-freelance-services-in-the-production-and-broadcasting-of-sports-content)

[and broadcasting of sports content, UK Government, 13 July 2022.](https://www.gov.uk/cma-cases/suspected-anti-competitive-behaviour-relating-to-the-purchase-of-freelance-services-in-the-production-and-broadcasting-of-sports-content)

[155 CMA, ‘Corporate report CMA Annual Plan 2023 to 2024‘, 23 March 2023, accessed on 29 February 2024.](https://www.gov.uk/government/publications/cma-annual-plan-2023-to-2024/cma-annual-plan-2023-to-2024)

[This CMA Microeconomics Unit has also recently published a report ‘Competition and market power in UK](https://assets.publishing.service.gov.uk/media/65b2312af2718c000dfb1d13/Competition_and_market_power_in_UK_labour_markets.pdf)
[labour markets’, Report No.1, 25 January 2024.](https://assets.publishing.service.gov.uk/media/65b2312af2718c000dfb1d13/Competition_and_market_power_in_UK_labour_markets.pdf)

[156 Competition Act 1985 (CNDA), c. C-34, s 45(1.1); Competition Bureau Canada, ‘Wage-fixing and](https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/wage-fixing-and-no-poaching-agreements)

[no-poaching agreements are illegal in Canada‘, Government of Canada.](https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/wage-fixing-and-no-poaching-agreements)

[157 Canada, Parliament, House of Commons Standing Committee on Industry, Science and Technology:](https://www.ourcommons.ca/Content/Committee/431/INDU/Evidence/EV10828092/INDUEV28-E.PDF)

[Evidence, 10 July 2020, pp 3-4.](https://www.ourcommons.ca/Content/Committee/431/INDU/Evidence/EV10828092/INDUEV28-E.PDF)


-----

## Conclusion and next steps

This issues paper outlined the existing research and evidence in Australia and overseas on the use and
effects of restraints of trade on workers, and no-poach and wage-fixing agreements made between
businesses. This has been supported by valuable early engagement from lawyers, business groups,
unions, think tanks, international organisations and relevant national and international government
agencies.

Several issues have been identified relating to the use and impact of non-compete clauses. Many
issues identified in empirical analysis have been affirmed as practical issues affecting Australia today
through the Competition Review Taskforce’s early engagement, and include concerns about:

-  the “chilling effect” of restraint clauses on worker mobility, particularly among lower-income

workers, to choose better-paying jobs, and the ability for businesses to start up, recruit talent
and grow;

-  the high cost of litigation, the lack of clear guidance and ‘bright line’ rules, and the use of cascading

clauses or the ‘blue pencil test’, which can leave both workers and businesses with an unclear
understanding whether an agreed restraint will be upheld as reasonable and enforceable; and

-  the economic consequences of potentially inefficient allocation of labour and information, which

may be hampering productivity growth and innovation.

Further feedback is required to improve our understanding of such issues and inform the next steps.

The Competition Review welcomes any perspectives and contributions from the Australian community
and will also release a questionnaire for businesses and workers.

The Competition Review will also continue to gather and review evidence, including undertaking
analysis of recently released data by the Australian Bureau of Statistics in conjunction with other
administrative and survey datasets.


-----

