Introduction
The Restraint of Trade Amendment Bill, currently under consideration by the New Zealand Education and Workforce Select Committee, addresses a pressing issue in the nation's job market. It seeks to reform the regulation of restraint of trade clauses in employment agreements, aiming to strike a fair balance between protecting business interests and upholding the rights and opportunities of employees. This comprehensive review explores the proposed bill, its implications, and provides recommendations for its enhancement.
Bill General Policy Statement and What the Bill Proposes
A restraint of trade clause in an employment agreement is a provision that restricts an employee's ability to work in their field, area, or for a competitor after their employment ends. While these clauses are common, they are often included without adequate consideration of their fairness or consequences for employees, their families, or competition.
The Restraint of Trade Amendment Bill introduces several pivotal reforms:
1. Income Threshold: The bill suggests that restraints of trade should have no effect for employees earning less than three times the minimum wage. This provision aims to ensure that lower-paid employees are not unfairly restricted by non-competition clauses.
2. Proprietary Interest Requirement: The use of restraint of trade provisions will be limited to situations where the employer has a genuine proprietary interest to safeguard. This shift aligns the use of these clauses with the legitimate business needs of employers.
3. Compensation for Restrained Employees: Employers will be required to compensate employees who are subject to restraint of trade provisions. Specifically, employers must pay an amount equal to half of the employee's weekly earnings for each week that the restraint of trade remains in effect. This provision acknowledges the financial burden placed on restrained employees.
4. Duration Limitation: The bill places a cap on the duration of restraints of trade, limiting them to a maximum of six months. This restriction ensures that employees are not unduly constrained from seeking new opportunities in the job market.
Challenging Unreasonable Restraints
Restraint of trade clauses have often been included in employment agreements without sufficient scrutiny, leading to potential injustices. When these clauses are contested in court, they can be found to be unreasonable and, therefore, unenforceable. However, challenging such restraints can be costly and uncertain, forcing many employees, especially those with modest incomes, to accept these restrictions or stay in lower-paying positions. This perpetuates wage depression and stifles innovation in the job market.
The Public Interest
The Restraint of Trade Amendment Bill emphasizes the importance of the public interest. It asserts that lower-paid employees should have the freedom to pursue higher-paying job opportunities or leverage their skills to start their own businesses without being unjustly restrained. This bill strives to foster an environment where competition and innovation thrive while respecting the rights and aspirations of all members of the workforce.
Recommendations
Given the complexity of this issue and its profound implications, I offer the following recommendations:
Clarify the Income Threshold: Ensure that the income threshold for the application of restraint of trade clauses is well-defined and takes into account the risk of misuse of company information by employees, regardless of their income level.
Review Compensation Requirements: Reevaluate the 50% compensation requirement, considering variations based on the employee's income, to create a more equitable approach.
Enhance Existing Remedies: Explore options for improving access to remedies for employees who feel that restraint of trade clauses have been unjustly applied.
Comprehensive Risk Assessment: Conduct a thorough risk assessment that considers the potential risks posed by lower-paid employees, acknowledging that income alone should not determine the likelihood of lawbreaking or misconduct.
In conclusion, as the Restraint of Trade Amendment Bill progresses, stakeholders, experts, and the public are encouraged to engage in a constructive dialogue to ensure that the final legislation achieves the desired balance between protecting business interests and individual empowerment. Balancing the rights of employees with the protection of business interests is crucial for the prosperity of New Zealand's workforce, the growth of wages, and the promotion of innovation in the job market.
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