Small businesses will suffer under non-compete bill, COSBOA says

In light of the government’s proposed non-compete legislation that would also ban co-worker non-solicitation clauses and no-poach provisions, the Council of Small Business Organisations Australia is urging for clearer and more considered small business provisions.

According to COSBOA chief executive Skye Cappuccio, the draft bill fails to address the specificity of small business operations or prevent undue burden.

Cappuccio explained that the bill in its initial drafting – which proposed a ban on non-competes for workers under the high-income threshold of $190,100 – adequately removed unreasonable barriers that prevented workers from changing jobs, as small businesses are net hirers that benefit when workers move.

However, changes to co-worker non-solicitation bans are just one area where the draft bill goes further than originally announced.

Cappuccio said: “Unlike the non-compete ban, the ban on co-worker non-solicitation clauses has no income threshold – it applies regardless of how senior the employee is.”

“For a 10-person accounting practice, clinic, salon or trades business, the impact can be significant if a senior employee leaves and takes several staff with them.”

Further, Cappuccio said the broad phrasing is also likely to adversely affect small businesses, as the proposed definition could include activities such as networking and referrals.

With regards to no-poach changes, Cappuccio said: “These clauses aren’t hidden cartel conduct – they sit in plain sight in everyday agreements: franchise agreements, service contracts where a client agrees not to hire the provider’s staff mid-engagement, labour hire and group training arrangements for apprentices.”

She added: “The draft bill treats these arrangements as per se criminal cartel conduct, with serious penalties, including jail terms for individuals. A cafe owner relying on a standard franchise agreement should not risk being caught by laws designed to deal with serious cartel behaviour.

“A small business with 10 employees can be seriously affected if a senior employee leaves and takes several staff with them.”

Additionally, the penalty framework “does not adequately recognise the very different circumstances and resources of a small business compared with a large national economy”.

Cappuccio surmised the operational impact as not only significant, but immediate, detailing that the prohibition does not feature a grace period.

In the same vein, Cappuccio explained that the reforms do not detail selling restraints, saying: “The government has said restraints connected to the legitimate sale of a business will be protected. That protection needs to be explicit in the legislation itself.”

COSBOA has proposed a number of changes to the draft legislation, including amending the proposed ban on co-worker non-solicitiation to allow small businesses to protect themselves from staff departures, sale-of-business restraints clarification, the removal of criminal cartel exposure for routine small business contracting, the provision of a proper transition period, and a 12-month penalty deferral to give small businesses time to understand and implement changes.

In the meantime, Cappuccio urged small business managers to ensure they understand all employment documents, as well as reviewing templates and commercial agreements to identify any potential breaches now.

Further, she encouraged employers seeking to buy or sell a business to confirm possible restraint structures and seek advice before signing.

Cappuccio said: “The legislation needs to target genuinely unfair non-competes without exposing ordinary small businesses to disproportionate penalties, undermining the value of businesses their owners have spent a lifetime building, or burying them in legal uncertainty.

“Small businesses have dealt with relentless changes to workplace laws over the past four years. If the government makes another significant change, they need enough time to understand it and get it right.”

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