# Worker non-competes and other restraints

### Legal Aid NSW submission to  Competition Review - Treasury
 May 2024

323 Castlereagh Street
Haymarket NSW 2000
www.legalaid.nsw.gov.au


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### Contents

#### Acknowledgement ..................................................................................... 4

 1. About Legal Aid NSW .......................................................................... 5

 2. Introduction .......................................................................................... 6

 3. Current State: Restraint of Trade ......................................................... 8

3.1 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? ........................................................................ 8

3.1.1 Employer Interests Prioritised ..................................................................... 8
3.1.2 Non-competes are Widespread .................................................................. 9
3.1.3 Chilling Effect ............................................................................................ 12

3.1.4 Enforcing Non-competes .......................................................................... 16
3.1.5 Alternative Options ................................................................................... 17
**Recommendation 1: Implement a national uniform law that bans the use of non-**

compete clauses in Australia. ...................................................................... 18

**Recommendation 2: Any policy response should apply to all employees and also**

extend to independent contractors and ‘employee-like’ workers .................. 19

**Recommendation 3: Implement civil penalties to deter employers from using**

unenforceable restraints. ............................................................................. 19

**Recommendation 4: Require employers to inform workers in writing when a non-**

compete is unenforceable. .......................................................................... 20


3.2 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? ................................. 20

3.3 Are current approaches suitable for all workers, or only certain types of workers?

For example, senior management, low-income workers, or care workers etc? ..... 21

3.4 Would the policy approaches of other countries be suitable in the Australian

context? Please provide reasons. ........................................................................ 22

3.4.1 Complete ban ........................................................................................... 22
3.4.2 Partial Ban ................................................................................................ 23


3.5 Are there other experiences or relevant policy options (legislative or non
legislative) that the Competition Review should be aware of? .............................. 24

3.5.1 Bargaining power ...................................................................................... 24

3.5.2 Limited access to legal aid ........................................................................ 24

3.5.3 Boilerplate contracts ................................................................................. 24


#### 4. Non-solicitation of clients and other business contacts ..................... 26

4.1 What considerations lead businesses to include client non-solicitation in

employment contracts? Are there alternative protections available? .................... 26

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**Recommendation 5: Ban the use of client non-solicitation clauses for low-income**

workers and insecure workers. .................................................................... 27

4.2 Is the impact on clients appropriately considered? Is this more acute in certain

sectors, for example the care sector? Please provide reasons. ............................ 27

**Recommendation 6: Ensure any policy response has regard to the prevalence of**

client non-solicitation clauses in the care sector and the detrimental effect of
such clauses on NDIS participants and their quality of care. ....................... 28

#### 5. Non-solicitation of co-workers ............................................................ 29

5.1 What considerations lead businesses to include co-worker non-solicitation in

employment contracts? Are there alternative protections available? .................... 29

**Recommendation 7: Introduce a national uniform law banning the use of co-**

worker non-solicitation clauses. In the alternative, prohibit their use for lowincome and insecure workers. ..................................................................... 30

#### 6. Non-disclosure clauses ...................................................................... 31

6.1 What considerations drive businesses to include non-disclosure clauses in

employment contracts? Are there alternative protections, such as s183 of the
Corporations Act 2001 that are available? ............................................................ 31

6.1.1 The prevalence and impact of non-disclosure clauses .............................. 31

6.1.2 Alternative protections available to businesses ......................................... 31

#### 7. Restraints on workers during employment......................................... 33

7.1 When is it appropriate for workers to be restrained during employment? ............. 33
7.2 Is it appropriate for part-time, casual and gig workers to be bound by a restraint of

trade clause? ....................................................................................................... 33

**Recommendation 8: Implement a complete ban on the use of restraint of trade**

clauses for insecure workers including casual workers, gig workers, and
other workers engaged in employee-like work. ............................................ 34

#### 8. No-poach and wage-fixing agreements ............................................. 35

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## Acknowledgement

We acknowledge the traditional owners of the land we live and work on within New
South Wales. We recognise continuing connection to land, water and community.

We pay our respects to Elders both past and present and extend that respect to all
Aboriginal and Torres Strait Islander people.

Legal Aid NSW is committed to working in partnership with community and providing
culturally competent services to Aboriginal and Torres Strait Islander people.

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## 1. About Legal Aid NSW


The Legal Aid Commission of New South
Wales (Legal Aid NSW) is an independent
statutory body established under the Legal
_Aid Commission Act 1979 (NSW). We_
provide legal services across New South
Wales through a state-wide network of 25
offices and 243 regular outreach locations,
with a particular focus on the needs of
people who are socially and economically
disadvantaged. We offer telephone advice
through our free legal helpline LawAccess
NSW.

We assist with legal problems through a
comprehensive suite of services across
criminal, family and civil law. Our services
range from legal information, education,
advice, minor assistance, dispute resolution
and duty services, through to an extensive
litigation practice. We work in partnership
with private lawyers who receive funding
from Legal Aid NSW to represent legally
aided clients.

We also work in close partnership with
community legal centres, the Aboriginal
Legal Service (NSW/ACT) Limited and pro
bono legal services. Our community
partnerships include 27 Women’s Domestic
Violence Court Advocacy Services, and
health services with a range of Health
Justice Partnerships.

The Legal Aid NSW Family Law Division
provides services in Commonwealth family
law and state child protection law.

Specialist services focus on the provision of
family dispute resolution services, family
violence services, services to Aboriginal
families and the early triaging of clients with
legal problems.

Legal Aid NSW provides duty services at all
Family and Federal Circuit Court registries
and circuit locations through the Family
Advocacy and Support Services, all six


specialist Children’s Courts, and in some
Local Courts alongside the Apprehended
Domestic Violence Order lists. Legal Aid
NSW also provides specialist representation
for children in both the family law and care
and protection jurisdiction

The Civil Law Division provides advice,
minor assistance, duty and casework
services from the Central Sydney office and
most regional offices. The purpose of the
Civil Law Division is to improve the lives of
people experiencing deep and persistent
disadvantage or dislocation by using civil
law to meet their fundamental needs. Our
civil lawyers focus on legal problems that
impact on the everyday lives of
disadvantaged clients and communities in
areas such as housing, social security,
financial hardship, consumer protection,
employment, immigration, mental health,
discrimination and fines. The Civil Law
practice includes dedicated services for
Aboriginal communities, children, refugees,
prisoners, older people experiencing elder
abuse and people impacted by disasters.

The Criminal Law Division assists people
charged with criminal offences appearing
before the Local Court, Children’s Court,
District Court, Supreme Court, Court of
Criminal Appeal and the High Court. The
Criminal Law Division also provides advice
and representation in specialist jurisdictions
including the State Parole Authority and
Drug Court.

Should you require any further information,
please contact:

Bridget Akers

Employment Law Team – Civil Law

Phone (02) 4725 4609

Bridget.Akers@legalaid.nsw.gov.au


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## 2. Introduction

Employment law is consistently in the top three areas of civil law advice with Legal Aid
NSW providing 2548 advice services in 22/23, 2267 in 22/21 and 2965 in 21/20. The
most common areas of employment legal help are about unfair dismissal,
underpayment of wages and general protections claims.

The specialist Employment Law Team in Legal Aid NSW’s Civil Law Division
undertakes advice and case work for priority clients and provides training and support
to generalist civil lawyers about employment law. We use our practice experience,
advising and representing some of the most disadvantaged workers in NSW, as a
foundation for our law reform work and systemic advocacy.

While acknowledging the policy behind restraint of trade clauses in employment
contracts, Legal Aid NSW is concerned about the increasing prevalence of these
clauses and their impact on disadvantaged and low-income workers. In our experience
these clauses are increasingly widespread and not limited to particular industries or
occupation types. We routinely advise our clients that the clauses in their contracts are
likely to be unenforceable. However, in our experience, workers are intimidated when
faced with the risk of having to defend themselves in costly litigation and are more
likely to adhere to the terms of a restraint. This intimidation is compounded for workers
who have fewer employment choices, lower capability and less access to legal
knowledge.

Legal Aid NSW welcomes the Competition Review’s investigation into non-compete
clauses and the opportunity to provide a submission based on the experiences of our
clients.

**Recommendation 1: Implement a national uniform law that bans the use of non-compete**

clauses in Australia.

**Recommendation 2: Any policy response should apply to all employees and extend to**

independent contractors and ‘employee-like’ workers.

**Recommendation 3: Implement civil penalties to deter employers from using unenforceable**

restraints.

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**Recommendation 4: Require employers to inform workers in writing when a non-compete is**

unenforceable.

**Recommendation 5: Ban the use of client non-solicitation clauses for low-income workers**

and insecure workers.

**Recommendation 6: Ensure any policy response has regard to the prevalence of client non-**

solicitation clauses in the care sector and the detrimental effect of such clauses on NDIS

participants and their quality of care.

**Recommendation 7: Introduce a national uniform law banning the use of co-worker non-**

solicitation clauses. In the alternative, prohibit their use for low-income and insecure workers.

**Recommendation 8: Implement a complete ban on the use of restraint of trade clauses for**

insecure workers including casual workers, gig workers, and other workers engaged in

employee-like work.

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## 3. Current State: Restraint of Trade

3.1 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?

Legal Aid NSW considers that the common law restraint of trade doctrine prioritises the
interests of businesses over workers and the wider community, and that a policy
response is needed to address the inherent unfairness in the existing law and practice
with respect to the use of non-competes. Our concerns are broadly divided into four
categories:

3.1.1 Employer Interests Prioritised

The starting point for the common law doctrine is that a restraint is invalid on the basis
it is contrary to the public interest, unless the employer seeking to rely on the restraint
can establish that it is reasonably necessary to protect a legitimate business interest.[1]

In theory, the doctrine should strike a balance between three values that are often in
tension in the context of employment: the interests of businesses in protecting against
being undercut by their rivals; an individual’s right to ‘use and exploit for the purpose of
earning a living all the skills, knowledge and experience they have acquired during their
education and working lives’;[2] and the broader public’s interest in the economic
development that is considered more likely to occur if everyone in society can
participate to the fullest extent in the economy.[3]

However, there has been judicial and academic criticism that the doctrine has
developed to focus on employers’ interests with little consideration given to the
interests of workers, or the relative bargaining power between the parties. As Dr Ian
Ross states, ‘the common law’s primary concern is to assess whether the employer
has a legitimate interest and to determine if the non-compete is commensurate with the
interest. The employee’s position is generally treated as irrelevant, and consequently
the majority of non-competes are upheld.’[4]

1 _Herbert Morris Ltd v Saxelby [1916] 1 AC 688._

2 Hugh Collins, Employment Law (Oxford University Press, 2nd ed, 2010) 156.

3 Christopher McMahon and Alan Eustace, ‘Nothing to Lose to Lose but Their Restraints of Trade: Lessons for Employment

Non-Compete Clauses from EU Competition Law’ (2023) 52(2) Industrial Law Journal 2.

4 Ian Ross, ‘Non-compete Clauses in Employment Contracts: The Case for Regulatory Response’ (Working Paper No

4/2024, Tax and Transfer Policy Institute Working Paper, Australian National University, March 2024) 2.

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Further, as Andrew Stewart notes, ‘it is rare for a court to concern itself in any detail
with the relative bargaining power of the parties; or with the overall ‘fairness’ of the
agreement; nor is it necessary that the employee receive any additional consideration
for entering into the restraint.’[5]

The doctrine should also be considered within the broader context of Australian
contract law which has developed a focus on the primacy of the contract without
consideration of the relative bargaining power of the parties. Recent High Court
Judgments[6] have had seismic impacts in the employment law context given the High
Court’s clear intent to focus on construing the contractual terms and avoiding an inquiry
into the bargaining power of the parties to the dispute. The current Federal
Government has recently introduced legislation to undo the impact of these decisions.[7]

Given the doctrine’s limited consideration of the interests of workers and the relative
bargaining power of the parties, we consider that reform is necessary to address this
emerging trend which is clearly not in the public interest.

3.1.2 Non-competes are Widespread

The use of non-competes by Australian businesses has increased over the last five
years with nearly 1 in 5 Australian workers currently covered by a non-compete.[8] A
2023 ABS survey revealed that 46.9% of Australian businesses reported using at least
one type of restraint clause in their employment contracts, with non-competes used
across all industries and somewhat indiscriminately across occupation types.[9] Overall,
the data indicates there is an increasing tendency to use non-competes, and absent a
policy response, this trend is likely to continue.[10]

Non-compete clauses are no longer confined to senior level executives but are instead
used across all industries and occupation types, including for low-income workers. It is
our experience that non-competes are commonplace in employment contracts for
workers earning less than $80,000[11] and affect all occupation types including, among

5 Andrew Stewart ‘Drafting and Enforcing Post-Employment Restraints’ 1997 10 Australian Journal of Labour Law 184.

6 _WorkPac Pty Ltd v Rossato [2021] HCA 23, Construction, Forestry, Maritime, Mining and Energy_ _Union v Personnel_

_Contracting Pty Ltd [2022] HCA 1; ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2._

7 _Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth) and Fair Work Legislation Amendment (Closing_

_Loopholes No. 2) Act 2024 (Cth)._

8 Dan Andrews and Bjorn Jarvis, ‘The Ghosts of Employers Past: How Prevalent are Not-compete Clauses in Australia?’

(2023) e61 Institute.

9 _Restraint Clauses, Australia 2023, Australian Bureau of Statistics, Cat. No. 6306.0._

10 Ross (n 4) 1.

11 Noting that $80,000 is the current annual salary threshold to receive advice from a Legal Aid NSW lawyer about an

employment law issue.

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other examples, disability and aged care workers, yoga instructors, early childcare
workers, and hairdressers.

Case Study – Manager of a laundromat in a small regional town

Our client was employed as a laundromat manager in a small regional town under
an oral contract. Our client was made redundant and was given a letter by her
former employer entitled "Confirmation of Redundancy". The letter referred to our
client’s “implied employment obligation” and stated that our client was subject to a
non-solicitation restraint. The letter stated that the implied restraint prohibited our
client from soliciting, canvassing, approaching, or accepting any approaches from
clients of her former employer for a period of 12 months. No restraint area was
specified. The letter stated that her former employer may take steps to enforce the
obligation if her former employer were to become aware of any breach.

Our client sought legal advice as the “implied employment obligation” had never
been discussed with her during her employment. Our client was concerned that the
restraint would affect her prospects of employment as she intended to work in the
same industry within her town.

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Case Study – Casual Brow and Lash Technician

Our client, a young single parent, was employed as a casual brow specialist and
lash technician in a brow and eyelash boutique pursuant to a written employment
contract and was covered by the Hair and Beauty Industry Award. Our client was
paid a base rate of $28.58 per hour with penalty rates applying on weekends and
public holidays.

Our client’s employment contract contained a cascading non-compete clause and a
cascading non-solicitation clause preventing our client from engaging with a
competing business or soliciting former clients:


⎯ At a maximum, within 30 kilometres of any of the 10 locations in NSW and

QLD owned by her previous employer for 6 months; and

⎯ At a minimum, within 15 kilometres of any of the 10 locations in NSW and

QLD owned by her previous employer for 3 months.

During her employment, our client established her own at-home lash and brow
business. When our client’s employer became aware of our client’s at-home
business, our client was called into a disciplinary meeting where our client’s
employer reminded her of the restraint of trade clause in her employment contract.
Our client received a letter from her employer requiring her to cease operating her
business.

Our client subsequently resigned and sought legal advice about whether legal action
would be taken against her. Our client stated while she had not contacted any
former clients, some former clients had found her independently.

Non-competes are also no longer confined to individual employment contracts. They
can now be found in independent contractor agreements for low-paid gig workers, in
enterprise agreements which cover large cohorts of workers,[12] and they have become
a common feature in settlement agreements or exit agreements. In our experience, this
includes:

⎯ Employers restating or extending a restraint from the contract in a settlement

agreement upon the resolution of a dispute. In some cases, this includes
extending the scope of the restraint for a longer duration and commencing from
the date of the settlement agreement, not the cessation of employment. To a

12 Ross (n 4) 1.

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lesser extent, we have also seen restraints included in settlement agreements
despite the employment contract not containing any restraints.

⎯ Employers providing employees with ‘exit agreements’ whereby employees

sign restraints upon cessation of employment in return for being paid their
lawful entitlements (e.g. notice, accrued annual leave, redundancy).

While non-competes have proliferated in Australia, the types of interests that may be
protected by such restraints have also increased. Historically, the common law restraint
of trade doctrine held that the types of interests that could be legitimately protected by
restraints included confidential information, trade secrets, and client lists or customer
connections. However, courts in Australia have more recently acknowledged that an
employer’s interest in a ‘stable workforce’ is also sufficient to justify restraints as
reasonable.[13]

Overall, non-competes have become more prevalent, apply to a broader cohort of
workers including low-income workers, and can be found in a wide number of
scenarios.

3.1.3 Chilling Effect

Under the common law doctrine, workers face inherent uncertainty and confusion
about whether the restraints in their contracts are enforceable and whether their former
employer will seek to enforce the restraint. This creates a chilling or intimidating effect
whereby workers avoid challenging the validity of restraints and instead change their
behaviour, even when the restraint in question is unlikely to be enforceable.[14]

Our experience is that non-competes cause employees to turn down job offers, avoid
looking for new jobs, resign from new jobs, seek employment in different industries, or
not start their own businesses. This can compound the impact of discriminatory, or
hostile work environments because workers believe they are unable to leave due to the
non-compete clauses in their contracts.

13 Ross (n 4) 17.

14 Christopher Arup et al, ‘Restraints of Trade: The Legal Practice’ 2013 36(1) UNSW Law Journal 1.

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Case Study – Casual NDIS Disability Support Worker

Our client was employed as a casual Disability Support Worker for a NDISregistered disability service provider of in-home support services on the south coast
of NSW. Our client commenced employment in March 2023 pursuant to a written
employment contract and was covered by the SCHADS Award and paid $40.46 per
hour. There was a transmission of business, and our client was offered casual
employment with the new employer.

Less than two weeks after the transmission of business, our client was dismissed for
alleged misconduct. After the termination of her employment, our client began
providing disability support services as an independent contractor. Some of the
participants our client worked with during her employment sought services from our
client.

Our client later commenced employment with a different NDIS-registered disability
service provider. More of the people with disability that our client had provided
services to during her employment sought to transfer their NDIS plans to our client’s
new employer.

Our client received a letter from her former employer stating that our client had
breached the restraint of trade clauses in her employment contract which at a
maximum restrained our client from competing with the former employer in Australia
or New Zealand, or soliciting clients, for a period of 6 months.

Our client sought legal advice from us about the enforceability of the restraints and
whether she could remain working in the disability support sector. Our client was
particularly stressed by the experience and was fearful of accepting work from her
new employer, in case her former employer decided to commence legal action.

There are two broad reasons why the existing law and practice regarding restraints of
trade is plagued with confusion and uncertainty. Firstly, the doctrine has not developed
to set out clear rules about what constitutes a ‘reasonable’ geographic area or duration
of a non-compete. Rather, the doctrine is a subjective and highly fact-dependent test
that considers the ‘reasonableness’ of a non-compete having regard to the other
elements of the restraint, and against the ‘legitimate interest’ the employer is seeking to
protect. This has led to a diversity of judicial opinion and a general uncertainty about
the enforceability of non-competes.

Secondly, the common law doctrine creates further confusion and uncertainty as courts
can sever an invalid part of a non-compete without affecting the original nature of the

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clause and the contract (often referred to as a ‘blue pencil’ doctrine).[15] This encourages
employers to draft non-competes broadly and increasingly rely on ‘cascading’ or
‘laddered’ restraint clauses to reduce the risk that a non-compete will be
unenforceable.

It is our experience that employer overreach is common when drafting restraint clauses
as we see cascading variations of the restraint’s duration, geographic area, as well as
the activities affected. We commonly advise clients that the non-compete in their
contract is unlikely to be enforceable due to the scope of restraints being
unreasonable, however we are unable to give clients certainty, particularly where there
are cascading or laddered restraints.

Case Study – The ‘Indefinite Restraint’

Our client was a health worker in a regional area earning less than $80,000.

Our client’s employment contract contained an extreme example of postemployment restraints including cascading non-solicitation and non-compete
restraints which defined the maximum duration of the restraints as “indefinite” and
the maximum geographical area as “Australia and New Zealand”.

Our client’s employer lost the contract with a major health service in the area. The
company that won the contract offered our client a job. Our client’s former employer
threatened to enforce the restraint of trade clause in our client’s contract. Despite
our advice that the non-compete was highly unlikely to be enforceable in its entirety,
our client did not accept the contract holder’s job offer for fear of legal action by their
former employer.

The ‘chilling effect’ of broad non-compete clauses was made clear in a recent unfair
dismissal decision where the Fair Work Commission (FWC) considered the effect of a
non-compete on an employee’s efforts to find new work after being unfairly
dismissed.[16] The non-compete in question was similar to those we commonly see as it
stated that for a period of 12 months after the termination of his contract of
employment, the employee was not to work as an employee or contractor or advisor or
in any other capacity in any business which was “engaged in activities substantially

15 See Del Casale v Artedomus (Aust) Pty Ltd (2007) 165 IR 148, 132; Attwood v Lamont [1920] 3 KB 571, 578; SST

_Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516, 44–48._

16 _Mr Andrew Goddard v Richtek Melbourne Pty Ltd [2024] FWC 979._

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similar or identical to the Company and provides services substantially similar or
services offered by the Company.”

The employee in question had not applied for any jobs since being dismissed and
remained unemployed at the time of hearing which would usually weigh against the
FWC awarding compensation.[17] However, the FWC accepted the employee’s
reasoning that he had not applied for jobs because he believed the non-compete
prevented him from doing so and he was worried the employer would commence legal
action. As Deputy President Colman noted at [27]:

_Ordinarily, one would expect a person to have applied for jobs in the sector of_
_their expertise as a reasonable step in mitigating loss. However, the presence_
_of a non-compete provision in his contract explains Mr Goddard’s decision not_
_to do so. Although the provision is most likely unenforceable on the basis that_
_its scope is unreasonable, an ordinary worker cannot be expected to know this,_
_and it is understandable that Mr Goddard would not want to risk embroiling_
_himself in a legal controversy by acting contrary to an express provision in his_
_contract. I therefore make no deduction in respect of Mr Goddard’s decision not_
_to apply for jobs that might have involved a prima facie contravention of the_
_restraint of trade provision in his contract of employment._

…

_One wonders why such restraint of trade provisions are so commonly found in_
_the contracts of ordinary workers and whether they really protect any legitimate_
_business interest of the employer, or merely serve to fetter the ability of workers_
_to ply their trade, and to reduce competition for labour and services.[18]_

Ultimately, the uncertainty of non-competes operates to the benefit of businesses and
the detriment of workers. This is because inherent uncertainty means that variables
other than the legal merits of the restraint are active in determining the outcomes of
disputes and the observance of contracts overall. As Christopher Arup et al note, ‘in
restraint cases, these key variables can be characterised as the use of inside
knowledge and hard bargaining – variables that on the whole appear to favour the
employer over the employee.’[19]

Given the increased prevalence of non-competes in Australia, this disproportionately
disadvantages low-income workers who do not have access to legal knowledge and
advice, and who in our experience, commonly adhere to the terms of a restraint when

17 _Fair Work Act 2009 (Cth) s 392(2)(d)._

18 _Goddard v Richtek [2024] FWC 979 at [27]._

19 Arup et al (n 15) 5.

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threatened with enforcement action by an employer regardless of whether the restraint
is enforceable at law.

3.1.4 Enforcing Non-competes

Under the common law doctrine, the task of enforcing a restraint is left to the courts. As
noted above, however, non-competes are instead more commonly self-enforced by
employees who are uncertain and confused, and ultimately prefer to avoid the risk of
legal action. As noted by Arup et al, this practice is concerning because the courts’
policing of the public interest is routinely bypassed and the mobility of employees with
their know-how and talent restricted by default.[20]

In our experience, it is rare for employers to commence court proceedings against
ordinary workers as non-competes are difficult to enforce and litigation is expensive,
complex, and time-consuming. However, it is common in our experience that
employers use hard bargaining tactics to achieve either submission or settlement,
including:

⎯ restating restraint clauses in termination letters or exit agreements and

reminding employees that they remain bound by the restraints; and

⎯ threatening legal action where the employer considers an employee has

engaged, or is likely to engage, in conduct that is said to be in breach of a
restraint.


In light of the above, employers appear to clearly understand that they can obtain a
result without proceeding to court, as even the threat of legal action is enough to
change behaviour in most instances. It is little wonder then that ordinary workers tend
to overestimate the likelihood of employers successfully enforcing a restraint and
underestimate their own ability to push back on a threat of legal action or defend a
claim by a former employer. Our advice to clients that the non-compete in their contract
is probably unenforceable, but this is ultimately a question for the court, provides them
with little comfort.

Where an employer does commence proceedings in court to enforce a non-compete,
the initial enforcement action is usually an interlocutory application for injunctive relief.
Most matters are determined at this stage without proceeding to a final determination.
This tends to occur very quickly given the longer an employer leaves the application,
the less convincing its argument for relief and the less practical utility it will have given
the limited nature of most restraint periods.[21]

20 Ibid 6.

21 See, eg, Capgemini US LLC v Case [2004] NSWSC 674.

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Various commentators have criticised how commonly restraint of trade matters are
determined by way of injunctive relief, as it means the merits of the employer’s case
are not fully tested in court. Instead, an employer need only establish an arguable case
on the merits for the balance of convenience test to favour the granting of injunctive
relief.[22] As Arup et al argue:

_if the court considers that an arguable case is made out, it is rare to see a_
_decision in which the hardship to the employee tips the balance of convenience_
_against granting the employer the injunction. Generally, the balance of_
_convenience is weighed in the employer’s favour. The court is more concerned_
_about the threat of an immediate injury to the employer’s interest.[23]_

3.1.5 Alternative Options

**1. Ban non-competes**

We consider that a ban on non-compete clauses is the best policy response to address
the increasing prevalence of non-competes.

Moreover, aside from the protective function of banning non-competes, a ban would
also function to promote innovation and competition within the Australian context. Riley
criticises the common law doctrine for contributing to the ‘the sterilisation of the talent
of individuals, and the stifling of competition in the market for services.[24] Currently, the
common law doctrine stifles the ability of workers with expertise, talent and industry
insight from contributing to new and innovative projects.

To compare with other jurisdictions, California has had the longest and most robust
history of prohibiting non-compete agreements amongst state jurisdictions in the United
States and has become a centre for technological innovation. While Legal Aid NSW
can best speak to the protective function of a non-compete ban, the Federal
Government should not neglect the competitive function of such a ban by maximising
the capacity of highly skilled workers to contribute to the national economy.

The Federal Government should be emboldened to implement a national ban on noncompetes in Australia, particularly after the United States Fair Trade Commission’s
(FTC) recent decision to implement a federal ban in the United States. Several US
states had already banned non-competes, and so the FTC had the benefit of
comparative data between states that do and do not enforce non-competes to

22 See, eg, Arup et al (n 15).

23 Arup et al (n 15) 10.

24 Joellen Riley ‘Sterilising Talent: A Critical Assessment of Injunctions Enforcing Negative Covenants’ (2012) 34(4) Sydney

_Law Review 617, 621._

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understand the potential economic impacts of a federal ban. Restraints are also largely
prohibited in various other jurisdictions.[25]

Professor Alan Fels AO has recommended that non-compete clauses be banned in
Australia in his Final Report on the ACTU commissioned Inquiry into Price Gouging
and Unfair Pricing Practices.[26] Overall, the picture shows that a ban is likely to have a
positive effect for workers in Australia and is unlikely to have a negative economic
impact.

**Recommendation 1: Implement a national uniform law that bans the use of**

non-compete clauses in Australia.

**2. Limit the use of non-competes**

If the Federal Government does not introduce a complete ban on non-competes in
Australia, it should consider implementing legislative reform to limit how non-competes
can be used, and the workers who can be subject to such clauses. There are various
policy options that could be applied concurrently to ensure that low paid workers are
not subject to restraints.

a) Income threshold

As set out above, non-competes commonly apply to low-income workers who have
less access to legal advice and limited bargaining power, and who are more likely to
adhere to a non-compete even where it is likely to be unenforceable. A common policy
response in other countries is to impose an income threshold so that non-competes are
unenforceable for workers who earn less than the prescribed amount.[27] One option
would be to implement a threshold based on the current ‘High Income Threshold’ in the
_Fair Work Act 2009 (Cth) (FW Act) which limits unfair dismissal protections to_
employees beneath the threshold.[28]

b) Limits on duration and compensation during restraint period

The ability of courts to sever unenforceable parts of a restraint has meant that
employers frequently issue contracts with laddered or cascading restraint of trade
clauses. A common policy response overseas is to implement a limit on the duration of
restraints. For example, the United Kingdom has proposed to limit restraints to a 3
25 For example, Colombia, Malaysia, Mexico, India, and the Ontario province in Canada.

26 Alan Fels, ACTU Inquiry into price gouging and unfair pricing practices (Final Report, February 2024).

27 For example, Belgium. Also, various US states including Colorado, Illinois, Maryland, Massachusetts, New Hampshire,

Nevada, Oregon, Rhode Island, Virginia and Washington District of Columbia.

28 _Fair Work Act 2009 (Cth) s 382._

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month term limit. In Spain, there is a 6-month limit with a graduated limit up to 24
months for technical employees.

Further, many countries require employers to pay extra compensation during a
restraint period in order for it to be valid and enforceable.[29] This limitation could be
applied in tandem with the limitation on restraint of trade to high income earners.

A complete or partial ban on non-competes should include all employees and extend to
independent contractors and ‘employee-like’ workers, given the recent extension of
protections under the FW Act to these cohorts of workers.[30] This is necessary because
non-competes have become increasingly common for these workers, and they are
often lowly paid, their work is insecure, and they have limited bargaining power.

**Recommendation 2: Any policy response should apply to all employees and**

also extend to independent contractors and ‘employee-like’ workers.

**3. Other Matters**

a) Civil penalties

Overseas research suggests that some employers are likely to continue issuing
contracts with restraint of trade clauses even where a ban is introduced.[31] Any policy
response to ban non-competes completely or partially should also expose employers to
a civil penalty where they enter an unenforceable restraint.

**Recommendation 3: Implement civil penalties to deter employers from using**

unenforceable restraints.

b) Information

If the Government bans or limits the use of restraint of trade clauses, employers should
be required to inform workers whether restraints found in existing employment
contracts are enforceable by a prescribed date several months after any law receives
royal assent.

29 For example, China, Belgium, Denmark (40 or 60% of salary), Finland (40% of salary), France, Germany (50% of salary),

Poland, Portugal, Spain (20-70% of salary), and Sweden.

30 _Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth)._

31 Evan Starr, Noncompete Clauses: A Policymaker’s Guide through the Key Questions and Evidence (Report, 31 October

2023).

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This, combined with an effective public relations strategy, will ensure the changes are
clearly communicated and understood by all businesses, including small businesses,
which will help ensure compliance and deter employers from knowingly or unknowingly
continuing to use unenforceable restraints.

**Recommendation 4: Require employers to inform workers in writing when a**

non-compete is unenforceable.

c) Existing Employer Protections Sufficient

Employers would no doubt be concerned that any outright ban on non-competes is
going to adversely affect their ability to protect their intellectual property, trade secrets,
or client lists. However, we note that a ban would not leave employers without
adequate protections for their legitimate business interests.

Employers could rely on targeted client non-solicitation clauses and protections for
intellectual property, or the protections in equity against breach of obligations of
confidence or fiduciary duties and duties of good faith and fidelity. We address these in
more detail in our responses below. As Arup et al also note, 'employers also have
strategies beyond the law, such as the use of attractive staff retention packages, to
protect their interests. On this basis, reliance on non-competes is regarded as a lazy
fallback option’.[32]

3.2 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?

The Restraints of Trade Act 1976 (NSW) (RTA) does not strike the right balance
between the interests of businesses, workers, and the wider community. Instead, the
RTA entrenches the unfairness inherent in the common law doctrine by indirectly
encouraging employer overreach and increasing employee uncertainty about the
enforceability of restraints.

This is because under s 4 of the RTA, a restraint is valid to the extent to which it is not
against public policy, whether it is in severable terms or not. The RTA gives courts
discretionary power to partially enforce a restraint by reading it down to what is
reasonable, even if it cannot be ‘blue pencilled.’

32 Arup et al (n 15) 26.

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The RTA was a product of law reform designed to combat the clear deficiencies of the
common law doctrine as they were then perceived.[33] While courts have since struggled
with the application of the RTA, the correct approach to the application of s 4 was
settled in the 1980s and continues to be accepted today, which is as follows:[34]

1. The Court determines whether the alleged breach infringes the terms of the

restraint.

2. If there is an infringement, the Court determines whether the restraint is

against public policy.

3. If the restraint is not against public policy, the restraint will be valid, subject to

any s 4(3) order detailing the extent of the invalidity.

4. If there is no infringement, the RTA will have no function.


The practical operation of the RTA is that businesses are indirectly encouraged to draft
non-competes as broadly as possible to ensure that if they litigate, they walk away with
something. As Arup et al note from their interviews with employment law practitioners,
the usual outcome of litigation under the RTA is that the court reduces the length of the
restraint period. Because of this likely outcome, Arup’s interviewees considered that
the NSW jurisdiction was more accommodating of employers than the other
jurisdictions and so there was a lower risk factor attached to litigating there.[35]

As NSW has the highest rates of litigation for non-compete matters, this has a
substantial impact on the development of the law and practice with respect to noncompetes. Should a complete ban on non-competes not be implemented, any
implementation of a partial ban at the federal level will need to carefully consider the
interaction with the RTA to avoid conflict between federal and state laws.

3.3 Are current approaches suitable for all workers, or only certain types of
workers? For example, senior management, low-income workers, or
care workers etc?

The prevalence of non-compete clauses has increased over the last 5 years, and
absent a policy response, this trend is likely to continue.[36] Non-competes are no longer
confined to senior level executives but are instead used across all industries and
occupation types, including for low-income workers. We have detailed above various
examples of broad ‘cascading’ restraints in contracts of ordinary and low-income
employees, which has led to increased uncertainty and confusion about their

33 New South Wales, Parliamentary Debates, Legislative Assembly, 29 September 1976, 1179.

34 _Orton v Melman [1981] 1 NSWLR 583._

35 Arup et al (n 15).

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enforceability and a ‘chilling effect’, whereby workers change their behaviour
regardless.

Legal Aid NSW considers the current approach is inherently unfair for ordinary and
low-income workers as the common law doctrine and the RTA in NSW fail to
sufficiently consider the interests of workers, or the relative bargaining power between
the parties. Given the clear imbalance in resources between workers and businesses,
the current approaches encourage employers to overreach with broadly drafted
restraints and discourage workers from challenging their validity, which results in
workers passing up better job opportunities.

We consider that an immediate policy response is needed to ensure ordinary and lowincome workers are not subject to non-competes at all. In particular, non-competes
should not apply at all to low-paid employees, casual employees, employees under 18
years of age, or gig workers.

3.4 Would the policy approaches of other countries be suitable in the
Australian context? Please provide reasons.

3.4.1 Complete ban

Legal Aid NSW considers that a policy approach that bans non-competes completely
could be modelled on the United States’ proposal to ban non-competes as detailed in
the FTC’s Final Non-Compete Clause Rule on 23 April 2024 (Final Rule).[37] In
summary, the Final Rule proposes to:

⎯ prohibit an employer from entering, or attempting to enter, a non-compete

clause with a “worker” (including an independent contractor) or representing
that a worker is subject to a non-compete clause.

⎯ allow employers to maintain existing non-compete agreements with “senior

executives”, (those with over US$151,164 annual compensation and in a ‘policy
making position’ for the business) but bars an employer from entering, or
attempting to enter, a non-compete clause with a senior executive after the
Effective Date of the Final Rule.

The Final Rule supersedes all state laws to the extent, and only to the extent, that a
state’s laws permit or authorise conduct prohibited under the Final Rule or conflict with
the Final Rule’s notice requirements. It also sets out exceptions including that it does
not apply to non-competes entered by a person pursuant to a bona fide sale of a
business entity.

37 Federal Trade Commission, Final Rule, Non-Compete Clause Rule, 16 CFR Part 910, RIN 3084-AB74, 23 April 2024.

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Further, the Final Rule requires an employer to provide clear notice to workers subject
to a prohibited non-compete, in an individualised communication, that the worker’s
non-compete clause will not be, and cannot legally be, enforced against the worker. An
employer must also provide notice by the Final Rule’s Effective Date by hand-delivery,
by mail at the worker’s last known street address, by email, or by text message.

3.4.2 Partial ban

There are various alternative policy approaches that can be drawn from should a
partial ban on non-competes be implemented instead. We consider the primary focus
of any policy approach should be to ensure that non-competes can no longer be used
for low-income workers. For example, various US states have already banned noncompetes for low-income employees, casual employees, and employees under 18years old by implementing prohibitions that include income thresholds.[38] We refer to
our recommendations above regarding the imposition of an income threshold in
Australia.

We also refer to the policy approach of the United Kingdom which has proposed to limit
non-competes to a 3 month term limit. In Spain, there is a 6-month limit with a
graduated limit up to 24 months for technical employees. In Denmark, the Danish Act
on Restrictive Covenants outlines specific requirements for a non-competition
agreement, including the following:

⎯ the employee must hold a special position of trust

⎯ the clause must indicate the specific circumstances as to why such a clause is

necessary, and

⎯ certain compensation must be paid during the restricted period.39

Further, the approach in Australia should also consider the countries that have also

implemented a requirement that workers be compensated during the period of the

restraint period. For example, in Germany workers receive 50% of their regular salary

during the period of a restraint and in Finland workers receive 40%. In Spain, workers

are required to be paid ‘adequate compensation’ during a restraint period, which can

range from 20 – 70% of their regular salary. In Denmark, workers receive either 40 or

38 Several states and cities in the US (eg, Colorado, Illinois, Maryland, Massachusetts, New Hampshire, Nevada, Oregon,

Rhode Island, Virginia, Washington, District of Columbia) have enacted laws establishing salary thresholds or banning
non-competes for workers deemed not to pose a competitive threat, such as employees who are 18 years old or younger
and employees paid on an hourly basis.

39 The Danish Act on Restrictive Covenants.

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60% of their monthly salary (depending on the duration of the restriction) at the

effective date of termination of employment.

3.5 Are there other experiences or relevant policy options (legislative or
non-legislative) that the Competition Review should be aware of?

It is our experience that non-competes are now common in the employment contracts
of ordinary and low-income workers. While we have set out our primary policy options
above, we consider the Competition Review should also consider the following.

3.5.1 Bargaining power

The Issues Paper refers to evidence that rising market concentration in Australia is
giving employers more bargaining – or ‘monopsony’ – power in some markets. This
can have disproportionate effects on certain workers subject to a non-compete based
on the work they do, where they work, and their personal circumstances. It is our
experience that workers in regional areas and small towns are particularly affected, as
are workers with caring responsibilities, and CALD workers particularly migrant workers
on sponsorship visas. Any policy response should have particular regard to these
workers given the uncertainty of non-competes is heightened and the risk of
challenging them is greater.

3.5.2 Limited access to legal aid

There are few avenues through which workers who are defendants to claims that they
have breached a restraint of trade may obtain legal representation. Whilst Legal Aid
NSW can provide some advice and limited assistance, a grant of legal aid is not
available for defendants to breach of contract claims, including claims of breach of
restraint of trade clause.

A defendant to a claim of breach of restraint of trade could attempt to obtain assistance
from a community legal centre, but community legal centres typically do not represent
defendants to breach of contract claims. The worker could attempt to obtain pro-bono
assistance from a private solicitor, but most law firms have a limited capacity to provide
pro-bono advice. Most frequently, if the client wishes to obtain legal representation, he
or she will need to incur the significant cost of engaging a private solicitor.

3.5.3 Boilerplate contracts

It is apparent that many employers rely on boilerplate employment contracts that are
readily available from online legal or human resources services. These often come
standard with ‘laddered’ or ‘cascading’ restraint clauses and are drafted broadly. As
Riley has observed,

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_‘By the power of the word-processed precedent document, restraints that were once_
_considered appropriate only to preserve the value of goodwill purchased from a_
_business owner are now appearing in contracts for moderately paid salary earners.'[40]_

We have set out examples above with ‘indefinite’ or 24-month restraints periods, and
geographic areas that would, at a maximum, restrain working for a competitor in
Australia and New Zealand. It is our experience that employers, particularly smaller
businesses, often consider such restraints are enforceable precisely because they are
in the contract. Our clients receive legal threats and letters of demand from business
owners citing these maximum restraints and threatening legal action for perceived
breaches.

While many of these clauses are unlikely to be enforceable, it is apparent that
employers are aware that even the threat of legal action has a ‘chilling effect’ on
ordinary workers.

40 Riley (n 25) 620.

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## 4. Non-solicitation of clients and other business contacts

4.1 What considerations lead businesses to include client non-solicitation in
employment contracts? Are there alternative protections available?

Businesses use client non-solicitation clauses in employment contracts to protect their
proprietary interests by seeking to prevent an employee from soliciting or enticing away
their clients, customers, or suppliers if that employee leaves to set up their own
business or join a competing business. A non-solicitation clause usually includes
prohibitions on:

⎯ approaching former colleagues to entice them away from their employment;

⎯ approaching clients of a former employer with the intention to entice them to

use their products or services instead; and

⎯ approaching suppliers to provide their goods or services to them instead.

Legal Aid NSW acknowledges that non-solicitation clauses are a more targeted
instrument than non-compete clauses and that there are legitimate business interests
of employers that may be appropriately protected using non-solicitation clauses.
However, as we have set out in our responses above, restraints such as nonsolicitation clauses are often drafted broadly with ‘laddered’ or ‘cascading’ clauses that
render them likely to be unreasonable and unenforceable.

It is our experience that such clauses are commonly used in employment contracts of
ordinary and low-income workers and can have a disproportionate impact on certain
types of workers.

Case Study – Casual cleaner receives cease and desist

Our client worked as a casual cleaner and contacted a client who no longer wanted
to use her former employer’s services. Our client was served a cease-and-desist
letter threatening legal action if the breach continued.

Accordingly, Legal Aid NSW considers that the use of non-solicitation clauses in the
employment contracts of low-income workers, and insecure workers such as casual
employees, workers under 18 years of age, and gig workers is inappropriate.

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**Recommendation 5: Ban the use of client non-solicitation clauses for low-**

income workers and insecure workers.

4.2 Is the impact on clients appropriately considered? Is this more acute in
certain sectors, for example the care sector? Please provide reasons.

Legal Aid NSW considers that more consideration should be given to the impact of
non-solicitation clauses on clients, particularly in the care sector. It is our experience
that restraints such as client non-solicitation clauses and non-competes are commonly
used in the care sector for health workers, and aged care and disability support
workers.

It is our experience that care workers commonly seek legal advice after they have
ended their employment with a NDIS-registered care provider and they either join
another provider or commence working as an independent contractor. Their former
employer may threaten legal proceedings on the basis that clients have left and the
business considers the employee to have solicited or enticed the clients to do so.

Case study – NDIS worker dismissed after clients approached for care

Our client was dismissed from her employment as a physiologist for ‘breaching’ the
non-solicitation clause in her contract. Some clients had contacted her through her
private practice when the waitlist was too long at her employer’s practice. In effect,
the employer’s use of the non-solicitation clause prevented clients from receiving
timely quality care.

Choice of care is vital for NDIS participants to ensure they receive the highest quality of
care. The NDIS 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.[41] The public interest in upholding this right for
people with a disability to choose their carers should not be outweighed by commercial
interests of employers. Continuity of care may be desirable for a person with a
disability because:

⎯ A carer has rapport with the person and insight into their condition.

41 NDIS Commission, NDIS Code of Conduct – Guidance for NDIS Providers (September 2023).

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⎯ The person may want to avoid the disruption of a new carer who is unfamiliar

with their needs or condition.

⎯ The person’s family is familiar with and trusts a particular carer with the care of

their family member. This may be particularly important where the carer assists
the person at the person’s home.

⎯ Where a person is in a rehabilitative process, recovery and routines may be

disrupted with the introduction of a new and unfamiliar carer.

⎯ Continuity of care may ensure that a trauma-informed approach is taken

towards the person’s care.

Case Study – Legal threats by employer against casual NDIS worker

In March 2024, our client resigned from her employment as a casual psychosocial
recovery coach with an NDIS provider (‘former employer’).

Our client’s contract of employment had a cascading non-solicitation clause which
had a maximum restraint period of 12 months. The clause prevented our client from
soliciting current and prospective clients of her former employer directly or through a
competing business.

After our client left her employment, some of her former employer’s clients left the
service. One person contacted our client after she resigned and sought to continue
to receive services from her.

In April 2024, our client received a letter from her former employer alleging a breach
of the non-solicitation clause in her employment contract. Our client was given two
days to respond to their allegations of her breach of contract. In her response, our
client disputed that she had breached the non-solicitation clause:

Four days after sending her reply, our client received a response from the HR
department of her former employer which acknowledged the feedback provided by
our client and made no mention of the restraint of trade clause.

**Recommendation 6: Ensure any policy response has regard to the**

prevalence of client non-solicitation clauses in the care sector and the

detrimental effect of such clauses on NDIS participants and their quality of

care.

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## 5. Non-solicitation of co-workers

5.1 What considerations lead businesses to include co-worker nonsolicitation in employment contracts? Are there alternative protections
available?

It is our experience that non-solicitation clauses have become common in the
employment contracts of low-income workers and that they are often broadly drafted to
include restraints on both client and co-worker non-solicitation.

Businesses use co-worker non-solicitation clauses in employment contracts to protect
their proprietary interests and maintain a stable workforce. Businesses seek to protect
their business interests by preventing competitors from soliciting staff that give them a
competitive advantage or who have unique skills or expertise. The scenario that
employers seek to protect against is an ex-employee with intimate knowledge of the
business’ intellectual property or trade secrets going to work for a competitor or starting
their own business and soliciting or enticing other staff to go and join them.

While businesses may have a legitimate interest in preventing trade secret disclosure,
as Graves observes, there is no inherent link between co-worker solicitation and trade
secret disclosure.[42] The risk of trade secret disclosure is not guaranteed to eventuate
or increase because a former employee solicits a former colleague. This makes coworker non-solicitation clauses an inappropriate legal mechanism to address this risk.

Moreover, there are already pre-existing, appropriate legal mechanisms available for
employers seeking to prevent trade secret disclosure. While Australia does not have a
discrete legislative regime for trade secrets protection, the Corporations Act 2001 (Cth)
(Corps Act), contractual confidentiality clauses, non-disclosure agreements and
copyright law all provide different and effective legal mechanisms to protect employers
from the risk of trade secret misappropriation. We discuss these protections further
below.

Legal Aid NSW considers co-worker non-solicitation clauses in employment contracts
should be banned entirely. Such clauses are inherently unfair as they seek to restrain
workers that are not party to the contract (i.e. the employee who is said to have been
solicited or enticed away). Other commentators have argued that co-worker non
42 Charles Graves, ‘Questioning the Employee Non-Solicitation Covenant’ (2022) 55(4) 959, 988.

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solicitation clauses treat staff as objects and not subjects, and that such clauses should
be rendered ‘entirely unenforceable.’[43]

If co-worker non-solicitation clauses are not banned, their use should be substantially
restricted to ensure they do not apply to low-income workers, or insecure workers such
as casual employees, workers under 18 years of age, and gig workers.

**Recommendation 7: Introduce a national uniform law banning the use of co-**

worker non-solicitation clauses. In the alternative, prohibit their use for low
income and insecure workers.

43 Ross (n 4) 30.

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## 6. Non-disclosure clauses

6.1 What considerations drive businesses to include non-disclosure clauses
in employment contracts? Are there alternative protections, such as
s183 of the Corporations Act 2001 that are available?

6.1.1 The prevalence and impact of non-disclosure clauses

Businesses use non-disclosure clauses to restrict employees from disclosing
confidential information during, and after the conclusion of, the employment
relationship. This is intended to protect business’ unique processes, technologies, or
strategies by restricting disclosure of information such as intellectual property, business
plans, trade secrets, client lists, research, and commercially sensitive information.

ABS research indicates that non-disclosure clauses are commonly used in Australia
with 45.3% of businesses using a non-disclosure clause, and 81.3% of businesses
using non-disclosure clauses for over three quarters of their workers.[44] It is our
experience that most employment contracts contain confidentiality or non-disclosure
clauses, and that such clauses can be found in the contracts of low-income and
insecure workers, such as casuals and gig workers.

6.1.2 Alternative protections available to businesses

Should a policy response restrict the use of non-disclosure clauses in employment
contracts, alternative protections for businesses will remain available. In addition to
contract law principles, equitable obligations of confidentiality are applicable as well as
statutory protections under the Corps Act. For example, sections 182 and 183 of
the Corps Act prohibit officers or employees of a business from improperly using their
position, or information they obtain while working, to gain an advantage for themselves
or someone else, or which causes a detriment to the business.

The protection under s 183 of the Corps Act has been held to reflect a fiduciary
obligation under the general law.[45] The duty that it imposes also has a substantial
overlap with the equitable duty of confidence.[46] The advantage of s 183 for businesses

44 Australian Bureau of Statistics, Employee Earnings and Hours, Australia (Catalogue No 6306.0, 1 January 2024).

45 _SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079 [28]; as cited in Smart EV Solutions Pty Ltd v Guy [2023] FCA 1580 at_

[69].

46 _Plus One International Pty Ltd v Ching (No 3) [2020] NSWSC 1598 [547]._

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is that it does not require proof that the information is confidential, rather the focus is on
how the information was acquired.[47] The issue is to be judged objectively.[48]

Further, s 183 extends to situations in which a director, officer or employee makes use
of confidential information after they have resigned or been terminated, and also
applies to workers who may not be covered by a contract of employment.[49] This is
because s 183 applies to ‘officers’, which includes anybody 'who makes, or participates
_in making, decisions that affect the whole, or a substantial part, of the business of the_
_corporation’.[50] As a result, businesses avoid the need for complex arguments about_
whether a worker is an employee or a contractor.

The advantage of the protections under s 183 of the Corps Act for employees is that
businesses can enforce them only where it can be established that the employee made
improper use of the information in order to directly or indirectly gain an advantage for
themselves or someone else, or to cause detriment to the business. In contrast, nondisclosure clauses are often broadly drafted, and employees remain uncertain about
their enforceability, which results in a chilling effect.

Although we do not advise clients on disputes arising from the Corps Act, it is clear that
the protections under sections 182 and 183 are regularly relied upon by businesses in
litigation. In addition, where the information is subject to copyright, employers can also
utilise s 115 of the Copyright Act 1968 (Cth) (Copyright Act) as an additional avenue
for obtaining damages against ex-employees who use confidential company
information. In applying this provision, courts must have regard to, among other things,
the flagrancy of the copyright infringement, the conduct of the employee, and any
benefit shown to have accrued to the employee by reason of the infringement. This
provision has been successfully litigated in combination with s 183 of the Corps Act
with damages award against the former employee.[51]

Accordingly, businesses have effective alternative protections available should a policy
response restrict the use of non-disclosure clauses. These protections are already
frequently used by businesses in litigation and remove the uncertainty and chilling
effect of broadly drafted non-disclosure clauses in employment contracts.

47 Ibid.

48 _Marble Group Services Pty Ltd v Blenkinsop [2023] WASC 464 at [53]._

49 _TICA Default Tenancy Control Pty Ltd v Datakatch Pty Ltd [2016] FCA 815 (‘TICA’)._

50 _Corporations Act 2001 (Cth) s 9._

51 _SAI Global Property Division Pty Limited v Johnstone [2016] FCA 1333. See also TICA (n 51)._

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## 7. Restraints on workers during employment

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

Restraints placed on workers during their employment generally relate to:

⎯ non-disclosure of confidential information such as intellectual property, business

plans, trade secrets, client lists, research, and commercially sensitive
information to protect the business’ unique processes, technologies, or
strategies; and

⎯ not competing with the employer business either by going into business on their

own or working for a competitor.

Senior or executive-level employees, as compared with low-income or insecure
employees, may have the opportunity to use their position for personal gain, or
someone else’s gain, or cause detriment to the employer such that restraint during
employment for these employees may be appropriate.

It is generally accepted that implied duties of confidence, good faith and fidelity at
common law and in equity, apply to workers as long as an employment contract
subsists. However, acts of competition against an employer by low-income workers
may be necessary for workers to earn a living wage.

Consideration should be given to whether there should be statutory protection for lowincome and insecure workers to allow them in limited circumstances to compete with
their employer during employment.

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

Workers engaged in part time, casual and gig work are often the most vulnerable
workers advised by Legal Aid NSW. Gig workers and other workers engaged in
employee-like work are particularly vulnerable to exploitation.

A recent survey of independent contractors (including gig workers found:

⎯ most respondents worked significant hours, with 41 per cent working over 40

hours per week;

⎯ of those working over 40 hours, at least 66 per cent earned less than the

minimum wage; and

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⎯ workers with greater dependence on 'gig work' have lower take-home pay[52]

Workers engaged in these arrangements are often women, workers from non-English
speaking backgrounds, younger and older workers and workers with a disability.

Part-time, casual, gig workers, and other employee-like workers are vulnerable as
these roles often do not provide the worker a living wage and so workers need to
supplement their income through additional jobs and income streams. Non-compete
clauses serve to prevent these workers from being able to earn a living wage as well
as limiting the opportunities for the development of workers’ skills, thereby limiting the
opportunities for them to enter more secure employment.

Legal Aid NSW recommends that there be a complete ban on the use of restraint of
trade clauses. In the event that the government does not implement a full ban, Legal
Aid NSW recommends that any legislative amendment should make unlawful restraints
of trade in relation to part time, casual and gig workers.

**Recommendation 8: Implement a complete ban on the use of restraint of**

trade clauses for insecure workers including casual workers, gig workers, and

other workers engaged in employee-like work.

52 Australian Bureau of Statistics, Working Arrangements (Catalogue No 6336.0, 13 December
2023). The ABS reports that the majority of gig workers appear within existing data as
independent contractors using an Australian Business Number but are difficult to distinguish
from other self-employed people without employees.

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## 8. No-poach and wage-fixing agreements

Workers are typically unaware they are subject to no-poach or wage-fixing agreements
as these agreements occur between businesses and often remain confidential. Even if
workers were aware of a wage fixing or no poach agreement, they have limited
standing to challenge the agreement given that the validity of such agreements is dealt
with under the common law restraint of trade doctrine and the common law provides
that third parties injured by a restraint have no remedy.[53]

We see this most commonly when we advise clients employed by franchises such as
Bakers Delight, KFC, McDonald’s, and Domino’s which reportedly all use no-poach
clauses as a standard term in their franchise agreements. These clauses prevent
franchisees from hiring workers from other stores within the chain.[54] As noted in the
Issues Paper, the Franchise Disclosure Register indicates that 89.9% of all franchisors
in Australia impose some kind of restraint of trade on franchisees.[55]

The fast-food franchise sector in Australia includes low-wage and high-turnover
businesses with a high proportion of young and casual workers. Workers seek advice
from us after being barred from taking a second job at a different franchise or with a
competitor because of a no-poach clause in the franchise agreement. These workers
are often paid the minimum junior rates under the Fast Food Industry Award and are
seeking to supplement their income with a second casual job. No-poach agreements
limit their ability to do this, which can be further exacerbated by other factors such as if
the worker lives in a regional area, or an area with limited employment opportunities.

No-poach agreements are also prevalent in the United States’ fast-food franchise
sector with efforts by regulators there to curb their use. Studies in the US have shown
the removal of no-poach agreements increased average wages of job postings for
roles in the affected businesses by around 5-6% and increased the overall earnings of
workers in those businesses by around 4%.[56]

Overall, no-poach agreements limit a worker’s ability to move to, or take up, a role with
a different employer that may be a more suitable match for them. Wage-fixing
agreements work similarly as they reduce the incentive for workers to search for more

53 John Heydon, The Restraint of Trade Doctrine (4th ed, 2018) 301.

54 Andrew Leigh, How uncompetitive markets hurt workers (2023) 26(1) Australian Journal of Labour Economics 16.

55 _Issues Paper, p. 34._

56 See Francine Lafontaine, Saattvic Saatvic and Margaret Slade, ‘No-Poaching Clauses in Franchise Contracts:

Anticompetitive or Efficiency Enhancing?’ (Research Paper, Vancouver School of Economics, 2023); B. Callaci et al., ‘The
Effect of Franchise No-Poaching Restrictions on Worker Earnings’ (Discussion Paper, IZA Institute of Labor Economics,
2023) Abstract.

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productive roles. In turn, they artificially reduce workers’ wages and reduce workers’
bargaining position to demand better wages.

Other jurisdictions have acknowledged the anti-competitive nature of no-poach and
wage-fixing agreements and have implemented policy responses to limit their use. For
example, Canada recently prohibited certain no-poach and wage-fixing agreements
under existing criminal and civil competition law prohibitions, given the potential for
these agreements to undermine competition like any other price-fixing agreement
between competitors.[57]

Legal Aid NSW considers that Australia should follow the example of other jurisdictions
such as Canada, and prohibit certain no-poach and wage-fixing agreements. Any
policy response in Australia should have regard to the following considerations:

⎯ The prevalence of no-poach clauses in the Australian fast-food franchise sector

which includes low-wage and high-turnover businesses with a high proportion of
young and casual workers;

⎯ The particular impact of these agreement on low-income workers in regional

areas where there is a limited pool of available work;

⎯ The limited remedies available for employees to challenge these agreements

under the common law restraint of trade doctrine, or the RTA in NSW;

⎯ The jurisdictional limits of the Australian Competition and Consumer

Commission (ACCC) under the Competition and Consumer Act 2010 (Cth)
(CCA) and the Competition Codes of the states to deal with agreements that
relate to working conditions for employees and independent contractors; and

⎯ The finding of a number of reviews into Australian competition policy and

workplace relations that the negotiation and determination of employment terms
and conditions are best dealt with under the FW Act.[58]

© Legal Aid Commission of NSW 2024.

You may copy, print, distribute, download and otherwise freely deal with this work for a non-profit purpose
provided that you attribute Legal Aid NSW as the owners. To reproduce or modify the work for any other
purpose you need to ask for and be given permission by Legal Aid NSW.

57 _Issues Paper, 38._

58 _Issues Paper, 35 nn 128._

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