Competition taskforce turns attention to non-compete clauses

Businesses that level non-compete clauses on staff could be stifling the Australian economy, Competition Minister Andrew Leigh will say, as the government’s competition taskforce considers a crackdown on contract terms that limit worker mobility.

Contract terms that prevent staff from joining a competitor or launching their own enterprise may encourage high-performing workers to stay put, benefiting their employer in the short-term.

But in an address to the McKell Institute in Sydney on Thursday, Leigh will argue the widespread use of non-compete clauses could limit Australia’s economic dynamism and opportunities for growth, harming businesses in the long-run.

“The diffusion of new technologies and new ideas occurs when workers join new firms and bring better ways of doing things with them,” Leigh will say.

“Despite these benefits, Australia has seen a general decline in job mobility during the past 30 years, similar to other advanced economies.”

Other metrics linked to a dynamic economy — business entry and exit figures, job reallocation rates, the proportion of high-growth firms, and the proportion of employment by new firms — are also down since the early 2000s, Leigh will say.

“So it makes sense to carefully assess any barriers that may be limiting people from moving jobs, limiting businesses from expanding and limiting the flow of innovation in the economy.”

The Assistant Minister for Competition, Charities and Treasury is particularly concerned by the spread of non-compete clauses to young and low-paid workers who may not have the ability to challenge onerous contract terms.

Citing the examples of a 17-year-old dance instructor and a 21-year-old boilermaker, Leigh will argue the use of those clauses has gone too far.

“Non-compete clauses are being applied to hairdressers, early childhood workers and security guards,” he will say.

“Once upon a time, only the best-paid corporate executives were required to spend a period of ‘gardening leave’ between jobs.

“Now, gardeners are being forced to take gardening leave.”

Non-poaching deals in the spotlight

In a significant update to the government’s rolling competition review, Leigh will launch an issues paper seeking the views of businesses and employees on the use of non-compete rules and other worker restraint clauses.

It will seek input on non-poaching agreements, where competing firms make informal deals not to headhunt each others’ staff.

The competition review will investigate if those deals act as a de facto handbrake on employee wages — and if the Competition and Consumer Act 2010 should be tweaked, allowing the Australian Competition and Consumer Commission to bust informal deals that suppress wages.

“We will take a measured approach, informed by evidence,” Leigh will say.

“If we decide further reform is required, we will further consult on potential reform options.”

Stakeholders have been invited to share their views on the issues paper, and the competition review has launched a survey to gauge how workers and businesses are engaging with those clauses.