New data shows many businesses are now using non-compete clauses – and that’s bad for workers.

by Jack Thrower


Non-compete clauses limit the ability of workers to seek better pay and conditions and not surprisingly employers love them.

New data from the Bureau of Statistics has found that just over 20 per cent of all of Australia’s businesses – including 40 per cent of business with more than 1,000 workers – are restricting the ability of their staff to switch to new jobs through non-compete clauses according to new ABS data.

Non-compete clauses are terms put into employment contracts that restrict staff from ‘competing’ against the employer after their employment ends. An example of this is not being able to go work for a competitor in the same industry for a set period of time.

Historically these clauses almost only applied to highly skilled and paid professionals such as CEOs. They were justified because businesses wished to protect trade secrets disclosed to the employee, or because the employee could make use of highly valuable professional relationships they had gained while working for their employer.

Importantly, because non-compete clauses applied almost only to the highly-paid professionals, they were usually negotiated between a business and an employee with relatively high bargaining power, meaning the employee was able to trade-off these clauses for other conditions such as higher pay.

In recent years however non-compete clauses have spread across all sectors of the economy and all levels of employment, even becoming part of some template employment contracts.

The problem is they effectively tie an employee to a particular firm, and discourage competition between employers for workers. International evidence indicates these clauses reduce job mobility, discouraging employees from switching jobs regardless of legal enforceability. This is particularly concerning as job mobility often leads to higher productivity and wages, because workers will leave jobs to others that better suit their skills and needs and which can also offer higher pay.

So endemic have these clauses become in the USA that the US Federal Trade Commission (their equivalent of the Australian Competition and Consumer Commission) has proposed banning them.

But the new data from the ABS shows Australian workers are suffering just as badly from these restrictive contracts.

A total of one in five (20.8%) of Australian businesses report using non-compete clauses and these businesses account for about 31% of all employee jobs. Whilst NPCs are most common in the financial sector they are also prevalent in less highly paid sectors such as utilities and administration and even present in hospitality and retail industries. This accords with research from e61, finding that about one in five (22%) employees are subject to NPCs, similar to rates reported in the USA (about 18% of workers), and including typically low-wage workers such as clerical staff and labourers (about one in eight of these workers, 14%).

It might make sense for the CEO of a grocery chain to have a non-compete clause in their contract, but not a low-paid worker in a store or a fastfood restaurant.

Several Ministers, led by Assistant Minister for Competition, Andrew Leigh, have expressed concerns about non-compete clauses and Treasury is consulting on them as part of its Competition Review.

The government needs to act on these pernicious contracts that have nothing to do with protecting trade secrets, and everything to do with keeping wages down and protecting profits.

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