Madeline Worme
Solicitor
Commercial and Succession Planning
A restraint of trade clause is often used by employers to restrict an employee’s ability to engage in certain activities after their employment ceases. Common restraint clauses are often known as “non-compete” clauses, which prevent the employee working for a competing business within a specified period of time or radius to the business premises after ceasing their employment. These clauses are designed to protect the employer’s legitimate business interests, such as confidential information, customer connections and goodwill. However, regulators have recently expressed concerns that non-compete clauses unduly restrict job mobility and create a financial burden on fixed income earners.
In Victoria these clauses are presumed unenforceable unless the employer can demonstrate the restraint is reasonable in the circumstances. The Court’s will balance the protection of the employer’s interest against the employee’s right to earn a living.
According to recent media releases, the Albanese Government plans to ban these restraint of trade clauses for employees who earn less than the high-income threshold prescribed under the Fair Work Act 2009 (Cth). This threshold is currently $183,100 per annum, adjusted on 1 July each year. Although this change is not likely to come into effect until 2027, the change aims to enhance labor mobility, increase wages, and promote competition.
Whilst the proposed changes to restraint of trade clauses remain uncertain, employers should consider their use of restraints and consider the steps they can implement to protect their goodwill, confidential information and legitimate business interests in anticipation of the change.
If you would like any further information please contact our Commercial team on (03) 5445 3333 or email info@becklegal.com.au
