The federal government is in a consultation process to consider reform to law relating to restraints. In April 2024, the treasury produced an issues paper “Non-competes and other restraints: understanding the impact on jobs, business and productivity” which is available at treasury.gov.au. The issues paper identifies the typical types of restraint clauses on employees, including: The discussion paper deals (at pages 12 and 13) with cascading restraints. Cascading restraints (also called stepped restraints or ladder restraints) are a form of restraint which identifies: The clauses operate so that each separate obligation can be combined with each other so that – for example – at its widest the restraint might apply against working in the industry within Australia for 3 years, but then separately, it would apply to working for specific clients within Australia for 6 months and so on. While the first in most cases is likely to be void, the second is potentially valid, and there are any number of other combinations which would also be valid. A restraint with (say) 4 restrained activities, 4 geographical areas, and 4 restraint periods has over 60 combinations. Further, a restraint with a wider area might be valid for a short time and a restraint with a smaller area might be valid for a longer time. This then gives rise to enormous uncertainty on the part of the employee who could be sued by the employer and would have to go through the litigation process at significant expense, and with the prospect of it being responsible for damages and costs, and in circumstances where the court is unlikely to determine the outcome until well into or after the expiry of the greatest restraint period. The issues paper cites the study “Employment restraints of trade: an empirical study of Australian court judgments” as reporting that out of 145 court judgments where employers attempted to enforce a restraint at an interim level (ie as an injunction pending trial), the employers were mostly (53.8%) unsuccessful. This however does not take into account the fact that: The issues paper does not suggest potential methods to resolve these matters. One remedy might be to have an unfair contract terms regime in respect of employment contracts as is the case for consumer contracts, including business to business contracts. It seems odd that an employer could include a clause in an employment contract and bind their employee to it, when the same clause in a contract between the employer and a contractor might attract penalties under the unfair contracts legislation. This could discourage employers from including clauses that are unfair. At this stage, the public consultation period has ended, with the competition review to advise the government on outcomes in the second half of 2024. For advice relating to restraints in employment and other agreements, please contact Peter Muller at peterm@qbmlaw.com.au
