How HR can handle poaching disputes amid non-compete clause ban

The uptick in post-employment disputes is a call for HR practitioners to ensure that their processes and contracts contain strong legal agreements moving forward.

The recent move to ban non-compete clauses by the Albanese government for workers who earn less than the high-income threshold ($175,000) has spurred discussions around an observed uptick in poaching disputes.

HR Leader reached out to Hamilton Locke partner Timothy Zahara; Legalite head of employment law and workplace relations Natasha Hannah; Clayton Utz partner Amanda Lyras; and Maddocks partner for employment, safety and people Meaghan Bare about how HR practitioners can adapt to these changes while working to better support their employers, proactively and reactively, to avoid poaching disputes.

“We have certainly seen a general uptick in disputes regarding post-employment restraints (or ‘anti-poaching’ provisions) in the employment space,” said Zahara.

“While most disputes do not end up in court, employers are aware of and are seeking to enforce post-employment restraints, especially in the technology industry and businesses offering professional services.”

“For senior employees, we are also seeing an uptick in the enforcement of non-compete obligations. With the government announcing its intention to ban non-competes for employees earning less than $175,000, and given the substantial costs and complexities of seeking to enforce non-solicitation restraints, there are steps that HR teams and management can take to reduce their reliance on post-employment restraints.”

Zahara touched on how businesses and HR teams can mitigate the potential fallout that often arises through employee departure – noting that retention strategies are the important first step.

“Retention strategies are an obvious first step, but even engaged employees with strong client ties will inevitably move on. Businesses can try to mitigate this risk by proactively identifying ‘high-risk’ client connections – where the relationship is tied more to an individual than the business itself,” said Zahara.

“Strengthening these relationships through multiple touchpoints within the organisation reduces the fallout of departures. Encouraging collaboration, rather than rewarding only individual performance, can incentivise a team-based approach to client connections.”

“Where high-risk exits do occur, businesses should act swiftly. Well-structured notice periods and garden leave clauses can buy time to reinforce client ties before a departing employee transitions to a competitor. Employees on garden leave can be directed to assist with handover duties, which can be useful in facilitating the transition of the client connection to a new internal contact.”

Hannah pointed towards the use of restraint provisions and non-compete clauses as a “threat” device, noting that considering the appropriateness of these clauses is crucial.

“I often see non-compete and restraint provisions in employment contracts which are unlikely to be enforceable, because of ambitious or unclear drafting. It seems to me that employers are using these clauses to threaten employees and deter them from poaching clients or staff, regardless of whether they are prepared to enforce the restraint obligations,” said Hannah.

“For HR practitioners, it is critical to consider the appropriateness of including a restraint provision and to take the time to tailor these provisions so that they are fit for purpose and have the best chance of being upheld by a court.”

“If a contract provision does get tested before a court, HR practitioners need to be ready to defend what legitimate business interests they were seeking to protect by using the restraint. Otherwise, this could be a futile and costly lesson for the business.”

Following on from Hannah, Lyras also touched on the need for HR professionals to ensure that employment contracts contain strong confidentiality agreements.

“More broadly, to reduce the need to rely on restraints, HR professionals should ensure employment contracts contain robust confidentiality and intellectual property protections and the right to place employees on garden leave during their notice period, which can act as a quasi-restraint prior to termination of employment taking effect,” said Lyras.

“A focus on employee engagement and retention can also reduce the likelihood of employees being tempted by competitors. For founder employees selling their businesses, sale agreements can also include more robust restraint obligations outside the employment relationship.”

Finally, Bare explained that there are a number of ways in which HR teams can avoid disputes, mentioning the pathway of non-legal responses that can limit reputational damage moving forward.

“There are a number of ways that HR professionals can avoid disputes around post-employment restraints. These include seeking legal advice when drafting post-employment restraints – poorly drafted restraints can really impact on your ability to argue they are enforceable,” said Bare.

“HR professionals can also consider non-legal responses that limit the damage an employee can do to the business. Software and training that reminds employees of confidential information and that an organisation is monitoring the system for data theft should also be part of this approach.”

“When an employee leaves, steps should be taken immediately to shore up client relationships. Finally, keep an eye out for legislative reforms in this area and think about what it would mean for your business.”