# INTO NON-COMPETE CLAUSES AND OTHER RESTRAINTS

# SUBMISSION TO THE COMPETITION COMMISSION INQUIRY


31 May 2024

Professionals Australia welcomes the opportunity to contribute to the Competition
Commission’s review into the use and impact of non-compete clauses and other legal
restraints on employees.

Professionals Australia is the trading name of The Association of Professional
Engineers, Scientists and Managers, Australia which is a registered union. The union is
an occupational based union drawn from a broad range of technical professional and
/or supervisory and managerial groups such as architects, engineers, IT professionals,
mining supervisory and managerial staff, pharmacists, scientists, and veterinarians.

We support the ACTU (Australian Council of Trade Unions) submission in this Inquiry.
Our view is that non-compete clauses in employment contracts should be banned.

## Why are we making a submission?

Whilst it is accepted that lower paid workers are disadvantaged in contract negotiations
with employers, it is less accepted that highly skilled professionals are rarely able to
negotiate changes to their contracts. The fact is that there is currently a skills shortage
in engineering, but our professional engineer members find themselves faced with
employers unwilling to negotiate changes to their contracts. We have members who
are cyber-security specialists, an area in which there is a global skills shortage, and they
find they cannot negotiate changes to an employment contract. The main negotiation
will be around the remuneration and once that is settled, the negotiation ends. We have
members who have sought the removal of clauses which they feel are oppressive,
including non-compete clauses.  The employer has withdrawn the offer of employment
rather than discuss the matter any further.

This lack of genuine negotiation of employment contracts occurs during a period of low
unemployment and at a time when the labour market is reported as being strong. In
these circumstances, there is no basis to believe the market will correct the overreaches by employers regarding the terms and conditions in employment contracts.


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Instead, workers engaged on individual employment contracts rely heavily on legislative
protections to regulate the employment relationship in a way which balances fairly the
interests of workers, employers, the economy and other broader social interests.

It is our firm view that non-compete clauses are becoming increasingly common in
contracts, and we are seeing efforts to cement their place in employment relations. This
must be averted via legislative intervention because their effects are overwhelmingly
harmful to workers and broader community interests.

## What do we base our views on?  

Our views are based on the experiences of our members which we are informed about
through the contract review service we conduct for members. The contract review
service is offered to members whether they will be working as employees, labour hire
workers or as independent contractors. Approximately 150 employment contracts were
reviewed in 2023 by the national team. The annual review of this number of contracts
for engineers, IT professionals and pharmacists, among others, means the national
team of senior lawyers conducting this work can discern trends occurring in individual
contracts' content. From our vantage point, it is evident that law firms who draft
employment contracts for employers play a significant role in the spreading of changes
to contractual provisions across various employers.

A typical contract review consultation meeting with a member involves discussing each
clause of a proposed contract with them. This takes approximately 45 minutes to an
hour. The purpose of the consultation is to assist the member in determining how they
will respond to an offer of employment based on the contract setting out the terms and
conditions of employment. In broad terms, there will be five areas to consider in making
this assessment:

-  Any clauses which the member is not sure that they understand;

-  Any clauses which are deal-breakers from the member’s perspective;

-  Any clauses which do not accurately state the legal position (e.g. contrary to

legislation and /or applicable industrial awards);

-  Any clauses which the member does not like but they would like to know if they

are typical or ‘standard’ contract provisions; and

-  Any issues which are not covered that the member is concerned about.

It is true that our members are often skilled in making risk assessments in their
professional lives and able to engage in distinguishing between the ‘worse case’ and
‘most likely’ scenarios for making such assessments. They find that the contract review


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consultations assist them in making those assessments by, for example, deciding what
issues they need to ask relevant questions about and/or what legal protections there
are outside of the contract upon which they might rely.

There are an exceedingly small number of workers who may have realistic expectations
to engage in a lengthy negotiation about their employment negotiation which will be due
to a combination of their level of skill, experience and importantly and relevantly to this
Inquiry due also to their pre-existing relationship with their prospective employer.

In general, our members have low expectations about engaging in any genuine
consultation or negotiation with a prospective employer about the contents of their
contract.

## Incidence of non-compete, non-solicitation and non-disclosure clauses 

_Non-compete clauses_

The Issues Paper refers to evidence that approximately 22% of Australian workers have
[a non-compete clause.[[1]] Our experience is around 1 in 4 contracts contain non-](https://auc-word-edit.officeapps.live.com/we/wordeditorframe.aspx?ui=en-US&rs=en-US&wopisrc=https%3A%2F%2Fprofessionalsaust.sharepoint.com%2Fteams%2FWAS%2F_vti_bin%2Fwopi.ashx%2Ffiles%2Ff21b8952bc7d496fa0308485e708ab66&wdenableroaming=1&mscc=1&hid=D8092EA1-3071-3000-635E-BA8A08D48C10.0&uih=sharepointcom&wdlcid=en-US&jsapi=1&jsapiver=v2&corrid=1cbf6908-2187-a3cd-562d-4e9f354e006c&usid=1cbf6908-2187-a3cd-562d-4e9f354e006c&newsession=1&sftc=1&uihit=docaspx&muv=1&cac=1&sams=1&mtf=1&sfp=1&sdp=1&hch=1&hwfh=1&dchat=1&sc=%7B%22pmo%22%3A%22https%3A%2F%2Fprofessionalsaust.sharepoint.com%22%2C%22pmshare%22%3Atrue%7D&ctp=LeastProtected&rct=Normal&wdorigin=ItemsView&wdhostclicktime=1717155442000&instantedit=1&wopicomplete=1&wdredirectionreason=Unified_SingleFlush#_ftn1)
compete clauses and when a contract contains a non-compete clause, it will nearly
always have non-solicitation and non-disclosure clauses as well.

This is a dramatic increase from 15 years ago when staff report that it was a rarity to see
a non-compete clause in a member’s contract.

These days we see non-compete clauses in contracts offered to workers for whom it is
difficult to see what legitimate business interest could need to be protected via a noncompete clause. For example, what is the legitimate business need to include a noncompete clause in a contract for the hire of a new engineering graduate? Why prevent a
pharmacist from working within 3kms of any store within the chain of pharmacies in
which they were hired?

_Non-solicitation clauses_

The Issues Paper refers to the e61 Institute research showing around 16% of workers
have non-solicitation of client clauses in their contracts with evidence suggesting that
[these are more common in financial services and real estate sectors[[2]]. Our experience](https://auc-word-edit.officeapps.live.com/we/wordeditorframe.aspx?ui=en-US&rs=en-US&wopisrc=https%3A%2F%2Fprofessionalsaust.sharepoint.com%2Fteams%2FWAS%2F_vti_bin%2Fwopi.ashx%2Ffiles%2Ff21b8952bc7d496fa0308485e708ab66&wdenableroaming=1&mscc=1&hid=D8092EA1-3071-3000-635E-BA8A08D48C10.0&uih=sharepointcom&wdlcid=en-US&jsapi=1&jsapiver=v2&corrid=1cbf6908-2187-a3cd-562d-4e9f354e006c&usid=1cbf6908-2187-a3cd-562d-4e9f354e006c&newsession=1&sftc=1&uihit=docaspx&muv=1&cac=1&sams=1&mtf=1&sfp=1&sdp=1&hch=1&hwfh=1&dchat=1&sc=%7B%22pmo%22%3A%22https%3A%2F%2Fprofessionalsaust.sharepoint.com%22%2C%22pmshare%22%3Atrue%7D&ctp=LeastProtected&rct=Normal&wdorigin=ItemsView&wdhostclicktime=1717155442000&instantedit=1&wopicomplete=1&wdredirectionreason=Unified_SingleFlush#_ftn2)
indicates that, not surprisingly, consultancy services have a very high incidence of nonsolicitation of clients’ clauses in their employees’ contracts.


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Our observations are that the trend is for non-solicitation clauses to apply to both
former clients and former colleagues with the exception being to limit to one or the
other.

However, we would like to highlight that in the labour hire situation a worker may be
hired by an employment agency on a casual or temporary basis to work for a specific
employer. Their contract with the employment agency will contain a client nonsolicitation clause which prevents the worker from gaining more secure and/or longerterm employment.

_Non-disclosure clauses_

Our estimate is that non-disclosure provisions in contracts relating to post-employment
are appearing in around 50-60% of our members’ contracts currently. This appears to
be an increase compared to previous years. Could this be due to some of the
commentary made during the Inquiry that confidential information protections in
common law and in the Corporations Law may be adequate safeguards to protect
legitimate business interests? This is not clear.

Definitions of confidential information often include references to financial information.
With the abolition of pay secrecy provisions, we have seen one or two contracts which
refer directly to a person’s own remuneration being exempted from the non-disclosure
of confidential information requirement. We have also seen a small number of
contracts using the expression ‘to the extent permitted by law’ to denote that there may
be legal limits on the non-disclosure requirement but without specifying what those
legal limits might be. Most non-disclosure clauses do not contain any wording which
might alert a worker to there being any limits on the prohibition of ‘confidential
information’ as defined in the contract from being disclosed. There are legal limits on
the non-disclosure of confidential information such as whistleblowing or when a worker
needs to disclose certain information to obtain independent legal advice on a
workplace matter.

The commonplace use of ambiguous or non-specific wording in employment contracts
indicates the vital importance of legislation which expresses clearly what employers are
prohibited from demanding in employment contracts.

## Myth #1 Contracts with non-compete clauses adequately compensate the worker

Professionals Australia has not come across a contract which specifically pays an
employee for the period of their post-employment non-compete restraint.


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We have noted that many contracts which contain non-compete clauses include
wording to the effect that the remuneration under the contract compensates the
employee for the post employment non-compete provisions. This suggests the
employee is accepting the non-compete provision on that basis.

However, it is difficult to see how the annual remuneration under a contract could
adequately compensate someone for a 6 or 12 month or longer period unless it provides
an annual remuneration which is well above the average pay.

Fifteen years ago, it was not uncommon for a contract with a non-compete clause to
contain a longer period of notice of three months. This reflected the fact that the
employee may have their employment terminated: the longer period of notice was
intended to assist them in those circumstances.

When we have examined contracts offered to electrical engineer members and
reviewed the annual remuneration paid to those with non-compete clauses against
those without non-compete clauses, we have found no discernible additional premium
in the remuneration being offered to those required to accept a contract with a noncompete clause.

## Myth #2 non-compete clauses are not that much of a problem because they are unenforceable

Workers find non-compete clauses threatening.

Including such clauses in contracts, at a minimum, generates uncertainty over whether
the employer will act against the worker if they leave and commence working with
another business in their industry.

IT professionals often work in the IT industry in large multinationals which perform many
different types of functions. The IT professional who works in a specific area of the
business can find themselves faced with a contract containing a non-compete clause
which purports to prohibit them from working with a competitor to their employer in an
area unrelated to where they are currently working. Such clauses show no regard for
the interests of employees in broadening and developing their skills nor the wider social
and economic interest in having workers with broad skills.


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Similarly, many engineers traditionally work in specific industries for the duration of
their career e.g. electrical engineers work in the electrical power industry, civil
engineers in the construction industry, the range of engineers who work in the rail
industry, etc. To impose non-compete provisions on workers effectively prevents those
workers from working in the industry in which their skills and knowledge are the most
relevant. There are broader economic costs to industry when experienced workers are
excluded from working within it.

It is also concerning that when an employer terminates a worker during their probation
period or due to redundancy, they do not waive their non-compete clauses.  This lack of
regard for the interests of workers during these difficult times is symptomatic of the
over-reach of employer power which non-compete clauses represent.

Unfortunately, our members have also experienced what can only be characterized as a
vindictive use of these types of provisions to harass workers who leave their
employment.

Finally, we are starting to see our members having to ‘warrant’ in contracts with
prospective employers that they are not subject to any legal limitations impacting on
them working with the prospective employer. This development has the potential to
stifle labour market mobility even further.

## Conclusion

The continued use of non-compete clauses serves only a very narrowly construed
employer interest. Professionals Australia and its members are deeply concerned that
unnecessary limitations are being placed on workers to pursue better pay and
conditions and their careers due to these clauses. There is also a fundamental question
of the liberty of a person to agree to work for an employer which does not restrict their
future options about for whom they will work.

National Office
Workplace Advice and Support


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[[1] Competition Review, Issues Paper - Non-competes and other restraints: understanding the impacts on](https://auc-word-edit.officeapps.live.com/we/wordeditorframe.aspx?ui=en-US&rs=en-US&wopisrc=https%3A%2F%2Fprofessionalsaust.sharepoint.com%2Fteams%2FWAS%2F_vti_bin%2Fwopi.ashx%2Ffiles%2Ff21b8952bc7d496fa0308485e708ab66&wdenableroaming=1&mscc=1&hid=D8092EA1-3071-3000-635E-BA8A08D48C10.0&uih=sharepointcom&wdlcid=en-US&jsapi=1&jsapiver=v2&corrid=1cbf6908-2187-a3cd-562d-4e9f354e006c&usid=1cbf6908-2187-a3cd-562d-4e9f354e006c&newsession=1&sftc=1&uihit=docaspx&muv=1&cac=1&sams=1&mtf=1&sfp=1&sdp=1&hch=1&hwfh=1&dchat=1&sc=%7B%22pmo%22%3A%22https%3A%2F%2Fprofessionalsaust.sharepoint.com%22%2C%22pmshare%22%3Atrue%7D&ctp=LeastProtected&rct=Normal&wdorigin=ItemsView&wdhostclicktime=1717155442000&instantedit=1&wopicomplete=1&wdredirectionreason=Unified_SingleFlush#_ftnref1)
jobs, business and productivity, April 2024 at p.8

[[2] ibid](https://auc-word-edit.officeapps.live.com/we/wordeditorframe.aspx?ui=en-US&rs=en-US&wopisrc=https%3A%2F%2Fprofessionalsaust.sharepoint.com%2Fteams%2FWAS%2F_vti_bin%2Fwopi.ashx%2Ffiles%2Ff21b8952bc7d496fa0308485e708ab66&wdenableroaming=1&mscc=1&hid=D8092EA1-3071-3000-635E-BA8A08D48C10.0&uih=sharepointcom&wdlcid=en-US&jsapi=1&jsapiver=v2&corrid=1cbf6908-2187-a3cd-562d-4e9f354e006c&usid=1cbf6908-2187-a3cd-562d-4e9f354e006c&newsession=1&sftc=1&uihit=docaspx&muv=1&cac=1&sams=1&mtf=1&sfp=1&sdp=1&hch=1&hwfh=1&dchat=1&sc=%7B%22pmo%22%3A%22https%3A%2F%2Fprofessionalsaust.sharepoint.com%22%2C%22pmshare%22%3Atrue%7D&ctp=LeastProtected&rct=Normal&wdorigin=ItemsView&wdhostclicktime=1717155442000&instantedit=1&wopicomplete=1&wdredirectionreason=Unified_SingleFlush#_ftnref2)


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