September 2023
Executive Summary
The Restaurant Association does not support the Employment Relations (Restraint of Trade) Amendment Bill.
While we do not disagree that lower paid employees should be free to take a job with a competitor, we submit that the use of a wage threshold to determine whether or not an employee should be able to be subject to a restraint of trade is an arbitrary measure that does not address the reason for which these clauses are primarily used – to protect a business’ proprietary information.
In addition, the wage threshold set by this Bill is well above what anyone would consider as being ‘lower paid’; and the requirement to pay compensation for the enforcement of a restraint of trade is a significant departure from current practice.
Introduction
The Restaurant Association of New Zealand (the Restaurant Association) welcomes the opportunity to make a submission on the Employment Relations (Restraint of Trade) Amendment Bill, and we wish to appear before the Select Committee to speak to this submission.
While we do not disagree that lower paid employees should be free to take a job with a competitor, we submit that the use of a wage threshold to determine whether or not an employee should be able to be subject to a restraint of trade is an arbitrary measure that does not address the reason for which these clauses are primarily used – to protect a business’ proprietary information.
In addition, the wage threshold set by this Bill is well above what anyone would consider as being ‘lower paid’ and would include a significant proportion of the working population.
Furthermore, the requirement to pay compensation for the enforcement of a restraint of trade is a significant departure from the current practice.
It is likely that the changes proposed by this Bill will subvert the Fair Pay Agreement process our industry is currently engaged in, and will limit the power of both employees and employers to freely negotiate an employment agreement that meets their needs.
We therefore do not support the Bill.
Wage threshold vs Proprietary information
Restraints of trade are clauses used to protect an employer’s proprietary interests and intellectual property, so the arbitrary use of any wage threshold to determine whether a restraint of trade can be used is a misguided attempt at addressing the issue at hand.
We acknowledge that those earning a higher wage or salary are more likely to be senior staff, and are therefore more likely to have access to proprietary information—but setting a blanket wage threshold of over double the median wage is like taking a sledgehammer to a nail.
Using a wage threshold does not account for industry specific conditions, contexts, wages and salaries. For Hospitality, which is primarily made up of small and medium sized businesses, many employees—particularly within smaller businesses—will likely be covered by this proposed ban on restraints of trade while having full access to the proprietary knowledge and intellectual property of the business owner.
Wage threshold
The minimum wage is currently $22.70, meaning the proposed ban on restraints of trade would apply to any employee earning less than $68.10 per hour (or on a gross full-time annual salary of less than approximately $141,000.00).
In effect, using a wage threshold to determine which employees a ban on restraints of trade would apply to would mean the majority of employees in the Hospitality industry would be welcome to quit their job, and set up a Hospitality venture based on the proprietary knowledge they’ve acquired the very next day.
We do not wish to stifle competition – a thriving hospitality industry is essential to New Zealand’s economic success – but there must be a more responsive solution to this issue.
Compensation
The requirement in this Bill for an employer to make a payment equal to—at a minimum—half the employee’s weekly earnings for each week that the restraint of trade is in effect for a maximum of six months is a significant departure from the current practice.
Currently, employment agreements that include a restraint of trade will usually specify that their wage or salary includes compensation for post-employment restraint that may come into effect.
Under this Bill, an employer would need to pay a full time employee under a six month restraint of trade a minimum of $35,417.20
For small businesses like those in our industry, that is a significant ‘salary’ to outlay without seeing any return in the form of actual staffing.