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US non-compete proposal a step too far for Australia

Corporate and M&A
Jonathan Wenig portrait LORES v2

In a comment article published in today’s The Australian, corporate and M&A partner Jonathan Wenig argues that a proposal being considered by the US Federal Trade Commission to effectively render non-compete clauses unlawful is a case of “taking a concept with genuine validity and swinging it too far in a populist direction”.

Under the FTC’s proposed rule, all non-compete clauses that prevent a worker from signing up with a new employer or starting their own business in competition with their former employer will be illegal. Other restrictive clauses, covering non-disclosure and non-solicitation, may also be illegal if they are written so broadly as to effectively preclude a worker from working in the same field. In response to the idea, Assistant Minister for Competition, Charities and Treasury Andrew Leigh advised a recent gathering in Melbourne that he has asked the Australian Competition & Consumer Commission to explore it further.

“Yes, the proposal can be viewed as economically progressive,” Jonathan writes. “Any measures that promote competition and erode barriers to the free flow of resources, human capital and ideas are worth considering. But it may be that the FTC’s rule is an extreme response to a localised problem, rather than a high-minded demonstration of economic principles that Australia would be well advised to emulate.

“Unlike products that can move freely, the person responsible for creating them is, at least to some extent, inseparable from their expertise and knowledge. Without non-competes, what’s to stop the entrepreneur who sold you your business, the executive who knows all the inner workings of your company, or the technological wizard who innovated a competitive edge, from joining your competitor up the road?”

While the Australian system is not without its flaws, Jonathan suggests that a rule which provides greater clarity on the application and scope of non-competes, and a set of more balanced guidelines, would represent a more appropriately nuanced reform.

To read Jonathan's article, click here.

The article was prepared with the assistance of law graduate Ryan Sharp.

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