As noted in our 27 March 2023 Employment Note, the Assistant Minister for Competition, Charities and Treasury, Andrew Leigh MP (Leigh) recently requested advice from the Australian Competition and Consumer Commission (ACCC) about the competitive impacts of non-compete post-employment restraints.
Leigh suggests that non-compete clauses in employment contracts hampers job mobility and wage growth, and that the Government should consider prohibiting their use entirely.
It was previously unclear whether any proposed ban of non-compete provisions would also extend to the use of ‘no-poach’ provisions (also referred to as ‘non-solicit’ clauses). However, following a speech delivered at the National Press Club on 12 April 2023, the Chair of the ACCC, Ms Gina Cass-Gottlieb (Cass-Gottlieb) confirmed that no-poach clauses could also be in the firing line.
Cass-Gottlieb, when asked a question at the National Press Club about employee conditions, remarked that the ACCC did not currently have the power to deal with matters relating to employment conditions, perhaps “because there is such a strong faith in the industrial relations system…”
However, Cass-Gottlieb then went on to say, “Minister Leigh is very concerned… that it is possible that the industrial relations system and unlawful restraint of trade laws at a state level are not doing the work that they should do.”
In terms of whether no-poach clauses should be prohibited, Cass-Gottlieb suggests that “data and evidence analysis needs to be done to assess how broadly anti-no-poach clauses are… and how deeply throughout the workforce they are employed”. If the data were to show that no-poach clauses affected “not just … senior professionals … but the workforce broadly…” then this may be a matter that would need to be “looked at from a policy point of view.”
The purpose of no-poach provisions
No-poach clauses are contractual provisions that are used to prohibit former employees from ‘soliciting’ or ‘poaching’ other employees, clients, and customers after they have resigned, or their employment has been terminated. These provisions aim to prevent former employees from taking unfair advantage of business-critical relationships they have built up during their employment (and which are often funded by the employer).
Across most Australian States and Territories, non-solicit restraints are typically unenforceable for public policy reasons, unless they are reasonably necessary to protect the employer’s legitimate business interests. As a result, non-solicit clauses are typically only enforced by Courts in employment contracts for employees who have access to confidential information and/or significant client connections.
The risk of unintended consequences?
The reason for the focus on non-compete and no-poach clauses arose from the proposition that these clauses are operating to hold back employees from obtaining pay rises. Even if that were the case, care needs to be taken to ensure that any intended solution doesn’t have other negative effects on consumers and the economy.
It may well be the case that a total ban of no-poach provisions could lead to unintended consequences, leading to further litigation, reduced competition, and more intense employee monitoring. For example:
- Companies may lose key employees to well-established, cashed-up competitors who have the financial means to poach across whole teams of employees. If this is allowed to occur without restriction, there would inevitably be less competition for end consumers.
- Employers may need to consider using alternative ‘restraint’-type mechanisms such as extending notice periods and/or utilising ‘gardening leave’ provisions. While on garden leave, an employee will continue to receive their full salary, while directed to do no work. This is an effective way for employers to prevent employees from poaching other employees or working for a competitor, albeit at a significant cost, which small employers may not be able to afford.
- A total ban on no-poach provisions may lead to a rise in other claims, such as breaches of the various ‘officer and employee’ duties under the Corporations Act 2001 (Cth), breaches of intellectual property, and claims relating to tortious interference with contractual relations.
- A ban on no-poach provisions may lead to greater monitoring of employees by employers, who will be taking greater precautions to protect their confidential information if there is a risk that an employee could leave to commence work with a competitor at a moment’s notice.
The way forward
As flagged by Cass-Gottlieb, the Government is currently analysing how broad no-poach clauses are throughout the workforce. We expect a period of public consultation also to occur, which may take time to finalise before any recommendations are made. For example, we understand the Department for Business, Energy and Industrial Strategy in the United Kingdom undertook a similar consultation process between December 2020 and February 2021, and are yet to publish any findings or recommendations. There were a number of submissions that highlighted the problems with outlawing non-compete and no-poach provisions, including the matters identified above.
We will continue to monitor developments and consider the impact of any proposed ban on non-compete and no-poach clauses, including in other jurisdictions.
This article was prepared by Shivchand Jhinku, Partner, and Michael Absell, Solicitor.
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