Credit: Florian Schmetz via Unsplash
The Federal Government’s desire to end non-compete clauses for employees earning under $175,000 has implications for the competition wary advertising industry.
The proposal, which came in the Federal Budget, detailed how non-compete clauses prevent workers from joining competing businesses or starting their own ventures within a specific area and time period.
These clauses are often broad and limit job mobility, particularly for lower-paid workers.
Simon Hadfield, founder of Prime Mover Recruitment, welcomed the proposal and was scathing in his assessment of non-compete clauses.
"Non-compete clauses are a joke. Attempting to stop someone working in their industry, in a category that they know well makes no sense in my view. We work in advertising and marketing, not national defence," he said.
Tim Riches, group strategy director and principal at Principals, said the move would ultimately assist those looking to switch jobs for better opportunities and higher salaries.
“We’re a sector that definitely expects this level of mid-senior employees to cultivate highly valued client relationships, so it’s a reminder for all agency leaders that non-competes (retainer contracts) are not the best answers to key client retention," he said.
"I suspect this news may not be welcomed in certain holding companies with a long-standing love of lawyer's letters to ex-employees."
Adrian Roeling, chief operating officer at Hatched, said the proposal carried significant implications for the advertising industry.
"Given we are an industry driven by people, our agency people’s IP and relationships, both with clients and colleagues – this change could have a significant impact and will require careful consideration from all parties to ensure they focus on retaining the best talent and protecting their IP," he said.
Justin Randles, director of Mercury Talent, said the proposal was a welcome one, but he doesn’t anticipate the change having a significant impact on the industry.
“We don't foresee the Federal Government's proposed reform on non-compete clauses having a material effect on media industry hiring or remuneration because non-competes are not common in the media sector generally these days,” he said.
“When non-competes do occur, they are usually reserved for senior roles well over the $175k salary limit. Even for top management roles when non-competes are in place, they are usually shortened or waived entirely through good faith negotiation.”
Randles said that enforcing non-compete clauses had proved challenging.
“Non-competes have become increasingly challenged on the grounds of restriction of trade, so enforcing them has become more difficult. The proposed laws appear to be a case of legislation catching up with reality,” he said.
In his speech, treasurer Jim Chalmers highlighted the negative impact non-compete clauses have on professionals.
“Non-competes are holding too many Australians back from switching to better, higher paying jobs,” he said.
“People shouldn’t need to hire a lawyer to take the next step in their career. Or permission from their old boss if they want to be their own boss and turn an idea into a small business”
Chalmers said the proposed reform has the potential to lift productivity, reduce inflation, and improve GDP by $5 billion. On top of boosting wages by as much as 4 per cent.
The announcement comes after the Federal Government’s Competition Review found that non-compete clauses are increasingly common in Australia’s labour market and are driving down wages.
The Competition Taskforce is already in the process of conducting further analysis to assess the prevalence across industries, the impact on the labour market and economy, and the effects on employment, wages, productivity, competition, and innovation.
From this, the Treasury could consider potential reforms as part of a Competition Review.
Additionally, legal loopholes that allow businesses to collude on wages, and capping pay and conditions without workers' consent would also be identified and closed.
According to figures released by the Federal Government, a 2023 survey found that one in five Australian workers are bound by a non-compete clause, with half of all workers subject to some form of restraint.
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