Use of restraint of trade (ROT) contract clauses is of growing interest in Australia. This includes non-compete clauses (NCCs), which are used in contracts to prevent former employees working for a competitor or engaging in work of a similar nature. Of particular interest are the effects of NCCs on productivity and wages, and options for reform. This paper sets out the context, the arguments against NCCs, how other countries have regulated NCCs and the Australian Government's approach.

The economic consensus is that NCCs generally do more harm than good, lowering productivity, wages, and living conditions. Research also indicates that NCCs can reduce employee mobility, with subsequent negative impacts on wages and productivity.

Key points

• NCCs are used to protect business interests like intellectual property.
• Research suggests NCC use has increased over time in Australia, including among lower skilled workers.
• The Productivity Commission suggests that limiting unreasonable NCC use would improve productivity and wage growth.
• While NCCs can promote innovation and investment in workers, their impact on skills transfer and training remains uncertain.
• Globally, there are a range of different approaches to regulating NCCs and mitigating their impacts.