Cross-Border Catch-Up: Understanding Australia’s Proposed Non-Compete Ban

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Kate Thompson: Welcome to the Cross-Border Catch-Up, the podcast for global employers who want to stay in the know about cutting-edge employment issues worldwide. My name is Kate Thompson, and I’m here with my colleague Lina Fernandez. We are cross-border attorneys here at Ogletree. Today, we’re going to discuss an update to non-compete legislation in Australia. Lina, can you fill us in on what’s going on in Australia?

Lina Fernandez: Yes, definitely. So, non-compete clauses have long been a staple in employment contracts designed to protect businesses from losing their competitive edge when employees move on to new opportunities. So, these clauses are basically intended to protect employers’ proprietary information and confidential information. However, there is newly proposed legislation in Australia that is set to ban non-competes.

Kate Thompson: Interesting. So, can you tell us some more about this proposed legislation?

Lina Fernandez: Sure. So, the proposed law will apply to individuals who earn a base salary of less than the high-income threshold, which is the high-income threshold, which is currently 175,000 Australian dollars per year. In the U.S. dollars is approximately $110,000 per year. This threshold is only based on base salary. It does not include commissions or incentive compensation. This means that it will cover roughly about three million Australian workers. Basically, if you fall between the salary threshold, then the employers would not be able to add non-compete clauses on the employment contract. The ban is set to go into effect in 2027 only if the law is passed.

Kate Thompson: That’s great. Thank you so much, Lina. And non-competes are really used to restrict those higher-level employees and executives from moving to a competitor. So, the government actually explained that this legislation ban really should enable more employees to maybe move to other jobs or start their own businesses without any type of repercussion, like a court hearing. Lina, anything else that we should know about this proposed ban?

Lina Fernandez: Yes, so there is something else that I would like to point out that makes this proposed legislation in Australia really unique when it comes to non-competes. So, employers would not need to compensate their former employees for any loss of income they may have suffered during the non-compete period.

Kate Thompson: And that’s really interesting. So, to put this in perspective, let’s use Italy as an example just for a comparison. So, in Italy, employers actually offer a very generous consideration package to the impacted employee, and actually they must do this. And this is somewhere between 40 to 60% of the employee’s last gross base monthly income for each month of that restricted period. And I think that’s a really interesting comparison when you look at the differences in Australia versus Italy, and how employers in Italy are actually required to compensate their employees or their terminated employees during that period of the non-compete provision, whereas in Australia, they’re not going to be required to do that.

Lina Fernandez: Exactly. Yeah. And something else that I like to point out is that while the proposed ban is certainly broad, there may be some exemptions. So, for example, non-compete clauses could still be enforceable in cases where they are deemed necessary to protect legitimate business interests, such as trade secrets or confidential information from the employers.

Kate Thompson: And I think ultimately, here businesses are going to have to find other ways that they can protect their interests. So, maybe this is through a confidentiality agreement with stronger or enhanced language or perhaps an intellectual property protections or clause in an agreement when it comes time for the employee separation, and just other measures that they’ll want to think about to ultimately safeguard that sensitive information. So, we will see what employers come up with that this ban ultimately goes into effect.

Lina Fernandez: Yes, and on the employee side, the removal of non-compete clause is expected to benefit them because it’ll increase job mobility and it’ll reduce the legal risk associated with changing jobs. This is expected to lead to a more dynamic and competitive job market, which ultimately will benefit the economy as a whole. And Kate, as you mentioned, employers will need to rethink their strategies for protecting sensitive information and retaining top talent. And without the ability to rely on non-compete clauses, then companies may need to invest more in creating a positive work environment and offering competitive compensation packages to retain their employees.

Kate Thompson: Definitely. Great points, Lina. It’s important to note that this proposed legislation, it’s really still in the early stages. There’s probably going to be debate back and forth and discussions before any final decisions are made, but at the end of the day, we’ll definitely be closely watching these developments just so that we can understand the full impact of these changes if the ban ultimately goes into effect.

Lina Fernandez: Yeah. So, I think we can conclude that this Australia’s push for a wide-reaching ban on non-compete clause is a significant development in the world of employment law. It definitely highlights the ongoing global conversation about the balance between protecting business interests and at the same time promoting work and mobility.

Kate Thompson: Definitely. And as I said, we’ll definitely be keeping a close eye on the story as it unfolds, and we’ll be sure to bring you another update when we have more information if this ban ultimately goes into effect. So I think that is all the time we have for today. Thank you for joining us for today’s Cross-Border Catch-Up, and follow us to stay in the know about cutting-edge employment issues worldwide.

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