Non-Compete Agreements Harm Aussie Workers, Costs Us All

Australian workers have to overcome some significant barriers in navigating their careers.

Some may lack the training or work experience opportunities needed to make themselves stand out and take the next step. Others may be extensively qualified, but face limited new job or promotional opportunities relevant to their skill set.

But there's another common barrier that's often overlooked: post-employment restraints. Among the most well-known are non-compete clauses, but these aren't the only kind.

These tools are designed to protect employer interests. But their widespread use has far-reaching consequences for job mobility, wages and innovation across Australia.

Our new research , which was commissioned by the Department of Treasury and conducted by researchers at Queensland University of Technology, set out to examine how these agreements are impacting Australia's workforce.

We zeroed in on two very different occupational groups - hairdressers and IT professionals. Our findings point to an urgent need for regulatory reform in Australia. But we also offer solutions that could better balance business needs with worker rights.

What are post-employment restraints?

Post-employment restraints are contractual clauses that restrict what workers can do after leaving their jobs.

One common type are non-compete clauses, which prevent workers from joining competitors or starting their own businesses, usually (though not always) in the same industry.

There are also non-solicitation agreements, which restrict them from approaching former clients or colleagues.

And non-disclosure obligations can limit the use of confidential information concerning the employer's business - even when created by workers themselves.

Businesses argue these clauses help them safeguard their proprietary interests, such as hard-won client relationships, trade secrets and intellectual property.

However, their application is not limited to high-level executives or sensitive roles. Such restraints are more common than many realise.

Data cited in our report from businesses with 200 employees or less confirms previous Australian research : at least one in five businesses use non-compete, non-solicitation of clients and non-solicitation of co-workers clauses. The number is even higher if non-disclosure agreements are included in the list of restraints.

Overall, half of all Australian workers are reported to have post-employment restraints - including many in low-paid jobs.

As former Fair Work Commission President Iain Ross has pointed out , this raises critical questions about fairness and the broader impacts on the labour market.

A tangle of restrictions in hairdressing

Hairdressing is a predominantly female, low-wage profession. Our interviews with hairdressers reveal the outsized impact that post-employment restraints can have on vulnerable workers.

Restrictions typically include bans on working within a certain radius of their former salon, taking clients to a new employer, or starting their own business.

Many interviewees only learned about these restrictions after accepting a position or deciding to leave. Some reported being barred from telling clients of their departure or facing demands to pay penalties if clients followed them to a new salon.

The personal relationships hairdressers form with their clients are central to their work and professional identity. However, these relationships often become battlegrounds when employment ends.

Hairdressers explained the difficulties that often arose from becoming "friends" with clients. As one put it:

As soon as you leave, it's almost harder than a breakup.

Chained to the chair

Financially, these restrictions exacerbate the already precarious conditions in the hairdressing industry.

With limited opportunities for wage growth, many hairdressers establish their own businesses or rent chairs in salons for greater independence.

Yet, non-compete clauses often delay these plans. Hairdressers are then forced to accept lower-paying positions or leave the profession entirely.

Social media has added a whole new layer of complexity. Hairdressers are often required to use their personal social media accounts to promote their employer's business, only to have their posts deleted or accounts locked when they leave. This can erase years of professional work and connections.

Many young hairdressers we spoke to expressed particular frustration that their social media presence, cultivated under the salon's brand, could not be carried forward to new roles.

Holding back innovation

Our study found while hairdressers face restrictions on their mobility and client relationships, IT professionals face obstacles that limit their ability to innovate.

IT professionals often develop new technologies, software or processes, sometimes in their own time. However, contracts often claim ownership of these innovations for the employer.

We found non-disclosure agreements, non-compete clauses and intellectual property ownership terms are all common in the industry.

This environment discourages entrepreneurial ventures and independent projects, even as the industry demands agility and creativity.

As one participant explained:

It's made me pause multiple times, made me think about not developing a code that you're interested in just for your own development.

Professionals reported feeling "locked in" to roles, unable to pursue side projects or start their own businesses without risking legal action.

Non-compete clauses in IT contracts also restrict job mobility when professionals cannot join competitor companies or use their expertise in new roles.

This impacts not only individual workers but also the broader industry, as firms struggle to recruit skilled talent.

Paradoxically, some employers actively poach talent from competitors while enforcing non-compete clauses against their own staff.

The way forward

By limiting job mobility, post-employment restraints contribute to wage stagnation and reduce workers' bargaining power.

Australia's regulatory approach to this issue lags behind other countries. There are no formal limits on the length or breadth of restraints, just a vague test of "reasonableness" that makes it hard to know what is permissible, without costly litigation.

In the United States, California has banned non-compete clauses outright, fostering a thriving tech industry . In Europe , companies like Germany impose strict limits on the duration of restraints and require employers to compensate workers during the restricted period.

These models demonstrate that balancing employer interests with worker rights is possible and can yield positive outcomes.

One option for policymakers in Australia would be to impose new restrictions on the scope and duration of restraints to ensure they serve legitimate business interests without unduly restricting workers.

Employers could be required to provide plain-language explanations around these restrictions at the time of hiring and compensate workers for the duration of any restraint, as seen in some European models.

Post-employment restraints are a double-edged sword. While they may protect legitimate business interests, their overuse undermines job mobility, innovation and worker wellbeing.

Paula McDonald receives funding from the Australian Research Council and the Commonwealth Department of Treasury.

Andrew Stewart receives funding from Commonwealth Department of Treasury.