PRIVATE MEMBERS' BUSINESS

Ms CLUTTERHAM (Sturt) (18:24): I rise today to speak in support of this motion regarding the banning of non-compete clauses for workers earning below the high-income threshold in the Fair Work Act, which will be $190,100 per annum from 2027. What this means is that nine in 10 Australian workers will enjoy a new right to be free of non-compete terms. A non-compete term will be defined.

In short, employers will be prohibited from including non-compete terms in employment arrangements and contracts and those terms will be deemed unenforceable if they are included in circumstances where employees have the right to be free of non-compete terms. In examining the merits of this motion and the underlying reforms it champions, it's important to understand the existing background and the context to non-compete clauses in Australia.

It's important to understand this background so that no oxygen is given to the suggestion that these non-compete reforms are an impost on small business or an unfair restriction on how businesses recruit and retain workers. The current position in Australia is that non-compete clauses are legal, but they are currently presumed by the courts to be invalid unless an employer can prove that they are reasonably necessary to protect a legitimate business interest.

Non-compete clauses do not currently provide fail-safe levels of protection for employers, which is what many people think is the case and what we have heard from many contributions in this chamber this evening. The reason for this presumption of invalidity is that the typical levels of unequal bargaining power between employer and employee when it comes to the employment contract exist.

That is not malicious on the part of the employer. It is just how it is. The employee wants the job.

The employer is offering it and as part of the offer is the author of the employment contract. They have to be because although employment contracts need to be legally compliant they also need to be tailored to the nature and requirements of the business and the nature and requirements of the role being filled. As the author of the employment contract, including any non-compete clause, the burden must fall on the employer to justify each element of it, including the time period, the activities and the geographic scope of any non-compete clause.

If a non-compete clause is challenged—and they often aren't—and an employer cannot demonstrate a genuine business reason, not just the premise that they don't want competitors hiring their people, the clause will fail. That is the current position under Australian law. This is why currently so many non-competes never get enforced.

Employers know their clauses wouldn't survive court scrutiny, so they rely on employees not understanding the presumption and not understanding their rights. I once had a non-compete clause in a contract that defined the geographic scope of the clause as the entire country of Australia. It did not define the prohibited activities beyond naming the relevant industry and included a time limitation of three months or six months or 12 months.

This is clearly very uncertain, very unclear, with a potentially very broad and restrictive application. It was widely accepted within the organisation that this clause, which many people had in their employment contracts, was not enforceable. The organisation eventually wised up to this issue and began including additional wording in employment contracts to the effect that the employee agreed that the non-compete was fair and reasonable, thus removing any right on the part of the employee to challenge the clause but still leaving the employee with a broad and restrictive non-compete clause preventing the ease of movement in the labour market and creating stress and uncertainty for employees who may have needed to change jobs because of family reasons, like a spouse getting a job in another state, and preventing employees from taking up a job with subjectively more suitable or improved conditions.

This example is what is driving the Albanese Labor government's non-compete reforms. These clauses will still be legal for high-income employees, who arguably have a stronger bargaining and negotiating position and who may actually present a legitimate commercial or competition risk to a business by virtue of their seniority.