Treasury draft bill could reshape restraints in advice businesses

The draft would regulate more than non-competes

Treasury has released draft legislation and explanatory material on non-compete clauses and other restraints. The proposal is not law. It remains subject to consultation, any changes made by the government and passage through Parliament.

The draft's central proposal is to prohibit a business from entering into, representing that it can enforce, or enforcing a non-compete restraint against a worker whose earnings are below the applicable high income threshold. The proposal is directed at the worker's earnings and the terms of the restraint. It does not create a separate exemption or regime for financial advisers.

The draft also addresses no-poach arrangements between businesses. These are arrangements under which businesses agree not to hire or solicit each other's workers. Other restraints, including clauses concerning solicitation, dealing with clients or the use of confidential information, need to be considered separately. They should not be treated as automatically equivalent to a non-compete, or as automatically unaffected by the reform.

The draft material should therefore be read clause by clause. The relevant questions are what the restraint prevents, who is bound by it, the worker's status and earnings, and whether the proposed provisions apply when the agreement is made, varied or enforced.

The consultation document and draft legislation set out the proposed commencement and transitional framework. Existing agreements should not be assumed to be either preserved or invalidated until the final legislation and its commencement provisions are known.

Why this matters to financial planning practices

The draft does not contain a financial planning specific rule. Its relevance is that advice businesses can use a range of employment and commercial arrangements involving advisers and other workers, while their commercial model may depend on continuing client relationships after an individual leaves.

For a practice, the key issue is not simply whether an adviser joins another firm. It is whether the contract is being used to restrict future work, contact with clients, recruitment of colleagues or use of business information. Those are different restraints and may have different treatment under the draft.

The scope question also needs to be answered for each arrangement. An employee adviser may be treated differently from a contractor, principal, partner or business owner, depending on the definitions and operative provisions in the final legislation. The fact that an agreement sits inside a financial planning practice does not, by itself, determine whether the proposed prohibition applies.

That makes the draft material more relevant to practice owners than a general warning about non-competes. A business should identify which arrangements are employment contracts, which are contractor or ownership documents, and which protections are intended to operate after a person leaves.

What practices should audit now

The reform is a prompt to map contractual reliance. It is not a direction to replace every restraint or to assume that client protections are unlawful.

A focused review should cover:

• employment agreements for advisers and employees with access to client information or business systems;
• contractor, consultant, partnership, shareholder and equity documents;
• non-compete, non-solicitation, non-dealing, non-poaching and confidentiality clauses;
• any provisions that restrict work for a competitor or contact with clients after departure;
• the status and earnings of the people covered by each agreement; and
• whether a clause is intended to protect confidential information, staff, client relationships, goodwill or a genuine ownership interest.

This is the part of the response prompted directly by the draft. It tests whether an agreement may fall within the proposed prohibition and whether the business is relying on a restriction that may not be available in its current form.

Some other measures are ordinary risk management rather than a direct consequence of the bill. Access controls, information security, accurate client records, documented handovers and the return of business property should be maintained whether or not the reform proceeds. They cannot be used as a substitute for legal advice, but they reduce reliance on a post-employment restriction as the only protection.

Do not treat all restraints as one issue

A broad non-compete seeks to restrict where a person can work or operate. A client non-solicitation or non-dealing clause addresses contact with clients. A confidentiality obligation addresses the use or disclosure of information. A no-poach arrangement concerns dealings between businesses about their workers.

The draft's treatment of these categories is important. A practice should not assume that a confidentiality clause can be used to achieve the same effect as a prohibited non-compete. Nor should it assume that a client restriction will have the same status as a restraint on working for a competitor.

The contract review should record the business purpose of each provision and whether the protection can be achieved more narrowly. This is a legal review, not an exercise in relabelling a non-compete as confidentiality or client protection.

What happens to existing agreements

The draft is not an immediate cancellation of every restraint currently in force. Its effect will depend on the final provisions, including the definitions, the relevant earnings test, the treatment of different types of worker and the commencement and transitional rules.

Until those provisions are settled, practices should avoid telling employees, advisers or departing principals that an existing clause is definitely enforceable or definitely void. A contract may also create dispute and negotiation risk even where its enforceability is uncertain.

Any proposed new agreement, promotion, acquisition, succession arrangement or material variation is an opportunity to obtain employment law advice and ensure that the documents reflect the actual relationship. That review should take account of the draft, but should not anticipate the final legislation as though it were already in force.

The role for practice owners and licensees

For a standalone practice, the immediate work is contract mapping and operational preparedness. For a licensee or advice group, the issue can arise across standard employment templates, contractor models, authorised representative arrangements and succession or acquisition documents used by multiple practices.

A licensee should identify whether its templates contain restraint language that is used consistently across a network, and whether the proposed reform could affect different arrangements differently. It should also distinguish centrally controlled documents from contracts entered into by individual practices. The draft does not make a licensee responsible for every restraint used by an advice business, but it makes standardisation and governance worth reviewing.

Prepare for the final bill

Three actions are justified now.

First, assign responsibility for monitoring the consultation, the final bill, explanatory material and commencement provisions. The critical issues are the final definition of worker, the earnings threshold, the categories of restraint covered and the treatment of existing agreements.

Second, complete a contract and operating model audit. Separate non-compete restrictions from client, employee and confidentiality protections, then identify which arrangements depend on the proposed worker and earnings tests.

Third, test the departure process. Confirm who manages client contact, access to practice systems, advice records, business information and outstanding service obligations. These are ordinary employment, confidentiality and cybersecurity controls, but they become more important where a business cannot rely on a broad restraint.

Treasury's draft is a consultation document, not the final legal position. Its immediate significance for financial planning practices is narrower than a sector-wide ban: it requires businesses to identify where their adviser and key-person arrangements depend on restraints that the proposed worker-based rules may limit, and to separate those restraints from protections that serve a different purpose.¹