Andrew Leigh

E&OE TRANSCRIPT
RADIO INTERVIEW
ABC MELBOURNE – DRIVE WITH WARWICK LONG
THURSDAY, 4 APRIL 2024

SUBJECTS: Non-compete clauses

WARWICK LONG (HOST): Dr Andrew Leigh is the Assistant Minister for Competition. Welcome to the program.

ANDREW LEIGH: Thanks, Warwick. Great to be with you and your listeners.

LONG: Why are non compete clauses bad for productivity?

LEIGH: Well, the biggest wage gains over a worker's career, Warwick, come when they switch jobs. If you look at job switches, they tend to get a significant pay bump, several thousand dollars on average. And we've seen the job switching rate falling over recent decades. One reason for that may be that a lot of employees have a clause in their employment agreement that says that they can't easily move to a competitor. They might be constrained to a particular geography in a particular time period. So, for example, you can't take another job in Melbourne for the next six months. And that means that workers miss out on the potential wage gains of shifting jobs. It also potentially means that a start up company can't hire the staff it needs in order to take on the incumbents. And that's why we've launched today this issues paper which is asking people to let us know their views on non compete clauses, whether they ought to be reformed, what ought to be the next steps.

LONG. So, just how wide are they being used? The examples given today have been things like dance instructors and boilermakers. Is that correct?

LEIGH: Yeah. When I first started talking about this a year ago, people said, don't worry about this, mate, they're just being applied to top executives. And then we ran a survey through on the employee side, through the e61 think tank, and on the employer side, through the Australian Bureau of Statistics. And both those surveys suggest that about a fifth of the workforce is subject to non compete clauses. Early childhood workers, security guards. I heard this story about a teenage keycutter who was sued by his former employer because he had moved to a competitor. It's hard to see what secrets a teenage keycutter is taking with him, but it certainly stops him from getting the wage gains of going to an employer who might treat him better and pay him more.

LONG: A key cutter.

LEIGH: Remarkable, isn't it? Yoga instructors, dance instructors. The fact is that a lot of us are working in industries where there's standard form employment agreements. We're to kind of take it or leave arrangements.

LONG: What about from a business point of view? The idea, I'd imagine, of a non compete clause is to give surety for businesses that some either knowledge that is gained in that workforce isn't easily or readily shared with the competition or clients aren't stolen away.

LEIGH: Well, it turns out that stealing is already against the law. But I think what's happening is that many employers are taking advantage of the current law in order to lock in their employees. And why wouldn't you if you could? At virtually no cost. It's not as though employees are typically being compensated for non compete clauses. They've just gone into boilerplate employment agreements and workers are being downed by them and they're being downed in cases where the clause might not be enforceable. So, their clauses will sometimes be cascading. So, they'll say, you can't work for a year in any competing employer in Australia, or if that's void, you can't work for six months and anyone in Victoria, or if that's void, you can't work within three months for anyone in Melbourne. And then the employees in the terrible situation, they don't know what they're actually being bound by. One person in my talk today said it ought to be regarded as a form of bullying, where a worker, just as being constrained because the standard form agreement's been put in front of them on a take it or leave it basis.

LONG: And how widespread are non compete clauses? How many contracts would employees out there today have some form of this in their contract?

LEIGH: One in five workers, which means there's millions of Australian workers that are being downed by this. It's right across the income spectrum, it's right across occupations. And increasingly, it's showing up in other ways, too. So, for example, franchise chains in some cases, such as McDonald's or Domino's or Baker's Delight, have clauses, but prevent franchisees from poaching each other's workers. That means that if you're in one McDonald's store and you want to move to another one, then if the franchisee is adhering to the agreement, they'll say, I'm sorry, we're not allowed to poach McDonald's workers from another store. That, again acts to dampen down wages. The employee isn't even a party to these agreements. These are franchise agreements done between the person managing the store and McDonald's head office. And yet they're still having an effect of dampening down workers wages. Under the former government, we had the lousiest decade of wage growth in real terms, in the post war era, we had terrible productivity. I reckon that non competes could well be one reason behind the fact that the wage growth figures under the former government and productivity figures under the former government were so dismal.

LONG. So, the question then is for you, how do you legislate around it? Do you ban non competes or does it need to be more nuanced than that?

LEIGH: We're having a look at the full range of options here, Warwick. That's why we've launched the issues paper today on the Treasury website. We've also got a survey there for employers and another survey for employees. We want to gather as much information as we can and make an evidence, informed decision here. It's certainly true, though, if you look around the world, that other countries are moving to constrain the use of non compete clauses. A number of US states have constrained non compete clauses. Spain, Finland have moved towards making them more difficult to enforce for employers. And a big fact in this is that Silicon Valley, the most innovative place on the planet, is located in a state, California, which has banned non competes for over a century. One of the reasons Silicon Valley is so innovative is because workers can freely go off and start a competing firm or move to another firm without the fear that a non compete will get in their way.

LONG: How long will your issues paper be looking at this and when can workers expect change?

LEIGH: Well, the issues paper is open for feedback until the end of May. We're keen to have a robust conversation about this and if we decide to proceed with reforms, then of course we consult on those reforms as well. We want to take measured, sensible steps on this, but we understand that for many workers, non compete clauses are making it harder for them to move to a better job. And when moving to a better job can be so beneficial to the worker, so beneficial to the economy at large, we want to be careful about allowing arrangements which make that mobility harder.

LONG: Dr Andrew Leigh. Thanks for your time.

LEIGH: Real pleasure, Warwick. Thank you.