Contractual non-compete clauses that prevent workers earning less than $190,000 from moving to better-paying jobs will be banned under proposed federal legislation in Australia. The government aims to boost job mobility and wages for more than three million workers, following findings that such restrictions create a chilling effect across the economy.
The federal government is moving to outlaw restrictive employment terms that prevent workers from seeking higher-paying opportunities. Under draft legislation to be unveiled on Monday, contractual handcuffs preventing employees earning less than $190,000 from moving to rival businesses will be prohibited. A related budget announcement from the federal government previously pointed to reforms targeting workers paid up to $175,000, and could extend the change to higher earners.
Economic Impact and the True Cost of Non-Competes
Non-compete agreements have traditionally been associated with high-income professions in which trade secrets may have a particularly high value. However, research shows these clauses now stretch far beyond executive suites, affecting bricklayers, childcare workers, nurses, retail staff, construction workers, and hairdressers. Data from the Australian Bureau of Statistics reveals that almost 47 per cent of businesses use some type of non-compete clause, with the most common being bans on non-disclosure agreements. The bureau found other restrictions are widely employed by businesses including client non-solicitation clauses (25.4 per cent), non-compete clauses (20.8 per cent) and bans on the solicitation of co-workers (18 per cent).
According to separate research cited by The Sydney Morning Herald, the e61 think tank has found that banning non-compete clauses could lift the wages of affected workers by up to $2500 a year. Submissions to an inquiry into non-competes last year revealed the extent to how they are being used to reduce the ability of employees to move to new jobs. In one case, a person on less than $80,000 a year was barred from taking a job in the same industry in Australia and New Zealand. In another case, a graduate engineer on $63,000 found a clause in their contract that prevented them from working anywhere else in Victoria for the next year if they left the company.
Government Rationale and Ministerial Statements
Proponents of the ban argue that restrictive clauses artificially depress wages by limiting worker mobility. Ministers maintain that employees should be free to leverage their skills without administrative barriers as part of plans to boost productivity across the economy.
“Workers shouldn’t need their old boss’s permission to take a better job. Non-compete clauses can act like a padlock on opportunity, holding down wages and keeping people from jobs where their skills are worth more. We’re cutting that padlock.”
Assistant Productivity and Competition Minister Andrew Leigh, via The Sydney Morning Herald
Employment Minister Amanda Rishworth emphasized the broad reach of the workforce restrictions and the necessity of reform for everyday service and trade roles, noting that non-compete clauses were hurting the entire economy.
“Labor is determined to help boost job mobility for more than three million Australian workers constrained by a non-compete clause, including childcare workers, construction workers and hairdressers.”
Employment Minister Amanda Rishworth, via The Sydney Morning Herald
Exemptions, Safeguards, and Consultation Timelines
While the draft legislation targets non-compete clauses, the government will also consult on a series of related employment restraints including non-solicitation and no-poach clauses and wage-fixing arrangements. Lawmakers plan to offer appropriate exemptions and safeguards
to protect what are considered legitimate business interests. This may include the transfer of corporate secrets with some businesses concerned that staff they have trained may take those skills to a competitor or set up their own firm.
Public consultation on the legislation will run until October 2.
