Australian government embarks on major competition policy review

What you need to know

• The Australian Federal government has embarked on a significant review of the country's competition policy settings.
• The review will report progressively over two years and will consider whether competition laws, policies and institutions remain fit for purpose. 
• The full scope of the review is not yet clear but the initial agenda includes merger reform and non-compete clauses in employment agreements.

Competition policy reform begins again

The Australian Federal Treasurer has announced that the government is undertaking a review of competition policy settings. The announcement coincided with the release last week of the Intergenerational Report, which highlighted the pressing need to improve national productivity to avoid a decline in living standards in the decades ahead.

The competition review will be conducted by a Treasury taskforce and supported by an expert panel. The full composition of the panel has not yet been revealed, but the Treasurer has announced that it will include CEO of the Grattan Institute, Danielle Wood and former Chair of the ACCC, Rod Sims. Mr Sims, who was Chair of the ACCC for over 11 years before handing over to Ms Gina Cass-Gottlieb in March 2022, will no doubt play an influential role in the direction of the review. Both prior to and since leaving the ACCC, Mr Sims has been vocal about the problems he perceives with Australia's merger laws and issues arising due to concentration in the Australian economy.

Competition review will be wide-ranging

The review will examine competition laws, policies and institutions, with a focus on reforms designed to increase productivity, reduce the cost of living and boost wages. The complete scope of the review is yet to be announced but initial issues will include:

• proposals put forward by the ACCC regarding merger reform, as well as other competition law issues;
• non-compete and related clauses that restrict workers from shifting to a better paying job;
• options for coordinated reform with states and territories, to be progressed through the Council on Federal Financial Relations;
• advice on the competition issues raised by new technologies, the net zero transformation and growth in the care economy.

Merger reform – what to expect

The question of reforms to Australia's merger laws and processes has been discussed in legal circles for some time now, but the government is yet to respond to the ACCC's proposals for change. These proposals called for (among other things) (i) a reversal of the onus of proof of substantial lessening of competition, (ii) changes to the SLC test to address creeping acquisitions by large firms, and (iii) introduction of a mandatory and suspensory merger filing regime. Despite not announcing its proposed merger thresholds, it has since been revealed through Freedom of Information disclosures that the ACCC proposed mandatory merger filing would be required where companies (ie, either the acquirer or target) have a turnover of A$400 million or where the global transaction value of the deal exceeded A$35 million.

It is clear that the government will use the competition review to respond to the ACCC's proposals. However, the question is whether the review will go further, to consider and respond to broader issues which may arise as a result of market concentration. Previous ACCC Chair Allan Fels has, for example, called for the ACCC to be given a divestiture power, to break up companies who have misused their market power. While Mr Sims has been more circumspect in his comments regarding a divestiture power, both he and the government seem to agree that the Australian economy is extremely concentrated and that policy change is required.

Review to consider non-compete clauses in employment agreements

Non-compete clauses in employment agreements are intended to prevent employees from working with a competitor of their current employer when they leave. The Competition and Consumer Act 2010 (Cth) currently contains a carve-out for certain employment-related terms, including post-employment restraints, leaving them to be dealt with under the restraint of trade doctrine.

Assistant Minister for Competition, Dr Andrew Leigh has expressed the view that non-compete clauses in employment contracts could be holding back Australia's productivity, hindering job mobility and dampening wage growth. Research commissioned by the government and conducted by the e61 Institute found that at least one in five workers were bound by non-compete clauses, including low-wage workers. The competition review will likely consider whether the carve-out in the CCA remains appropriate.

It is possible that the review might also consider "no poach" clauses, as one of the "related" clauses that can restrict workers from moving jobs. Minister Leigh believes these clauses are common in Australia's franchise agreements and raise similar issues.

What else might be included in the review?

No details have yet been provided in relation to the "other competition law issues" the review may seek to address. Nor are there any details in relation to the coordinated reform with the states and territories or the particular competition issues which will be addressed in relation to new technologies, net zero and the care economy.

In addition to these areas, it appears that the full scope of the competition review may evolve over time (as the issues are described as "initial issues to be considered").

One area not listed but likely to be added is the possible introduction of a prohibition on unfair practices. The ACCC has been lobbying for this prohibition for some time and we expect it will form part of the review. The other area which may be added is the regulation of digital platforms and specifically, a review of and response to the recommendations made by the ACCC in its Digital Platform Services Inquiry Report 5.

Authors: Melissa Fraser, Partner; Tihana Zuk, Partner; Angie Ng, Partner; and Amanda Tesvic, Expertise Counsel