Andrew Leigh

E&OE TRANSCRIPT
PODCAST INTERVIEW
ABC RADIO PERTH - MORNINGS WITH NADIA MITSOPOULOS
THURSDAY, 4 APRIL 2024

SUBJECTS: Non-compete clauses

NADIA MITSOPOULOS (HOST): Now, I wonder if you've ever left a job and then found yourself subject to a non compete clause which prevented you from working for a competitor. Now, if you have, I'd like to hear about your experience. And did you think it was fair or did you feel like you had a choice? Dr Andrew Leigh is the Assistant Minister for Treasury. I spoke to him earlier this morning about this and I started by asking him how widespread non compete clauses are.

ANDREW LEIGH: It looks like about one in five workers in the Australian workforce are subject to a non compete clause. We've got that number two ways: we’ve done surveys of employees and of employers. Part of what we want to do in this exercise is to gather the data. Over the course of the last year, we've discovered that non compete clauses aren't just being applied to executives, but also to early childhood workers, yoga instructors, dance teachers, security guards and hairdressers. And the impact of them could well be to dampen wage growth as well as to reduce productivity.

MITSOPOULOS: Ok, so are they acceptable, do you think, at an executive level?

LEIGH: Well, the argument there, Nadia, is that if you're a startup, one of the things you need is good quality talent. So, imagine you want to build a startup in the financial technology space. If all of the coders and the executives are tied up by a non compete agreement, that might impede innovation in that sector. So, yes, if you were to say they're acceptable above a certain income threshold, then you wouldn't get the dampening impact on wage growth for early childhood workers, but you might still be having a pernicious impact on productivity and innovation.

MITSOPOULOS: And so what about those other jobs that you mentioned where these non compete clauses are now being used? How does it dampen wage growth?

LEIGH: One of the best ways of getting a wage rise is to move to a better paying job. If you look at workers’ pay over a career, then typically the wage jump you get when you switch employers is bigger than the wage progression you get if you stay with the same employer and you see wages grow year on year. So, if you don't have job switching - and we've seen the job switching rate go down in Australia over recent decades - then you get slower wage growth and potentially you also get lower productivity. Part of the benefits is from workers moving to more productive firms where they've got a better match and can better use their skills. So, we're concerned about the prospect of, say, an early childhood worker who isn't able to leave and set up his or her own centre because of a non compete clause.

MITSOPOULOS. So, Treasury is doing consultation on this. What sort of information are you after?

LEIGH: Well, we're asking employers, employees, industrial lawyers, to give us their views on non compete clauses. We recognise that employers will want to hang on to confidential information. We're interested to know other ways in which they go about protecting that confidential information and the role that non competes play. We've got some research out of the e61 Institute suggesting that non compete clauses could be dampening wage growth to the tune of $7,000 a year for the typical worker. So, we're worried that that impact could be one of the reasons why wage growth under the former government was incredibly slow.

MITSOPOULOS: I'm talking to Dr Andrew Leigh, who is the Assistant Minister for Treasury, and we're talking about these non compete clauses. He has some concerns about them and I wonder if you have been the subject of one. Did you think it was fair? Get in touch.

A parliamentary committee has recommended you consider a ban on non compete clauses, or at the very least, some restrictions. Do you think that would likely happen?

LEIGH: Well, the report you're referring to is the House Economics Committee, chaired by Daniel Mulino. It’s a terrific 280-page report, and it goes into non compete clauses. I take that report very seriously, which is why we're engaging in this consultation. We're a data-driven, evidence-informed government, Nadia. We're keen to engage with stakeholders, find out all the views on these non compete clauses and work out the best way forward in addressing it in a policy sense.

MITSOPOULOS: And I notice other countries are bringing in limits to non compete clauses. So, for example, they can't be longer than three months. Now, whether you ban them completely or put in a restriction, do you concede that some change is needed?

LEIGH: Well, having a look at whether there's change needed, certainly I take the issue very seriously. One of the bits of evidence in favour of reform, Nadia, is that Silicon Valley, the most innovative place on the planet, is located in the state of California, which has banned non compete clauses for over a century. California doesn't allow employers to constrain their workers from moving firms. And that principle of leaving your employer to set up a new business really has been at the core of the Silicon Valley innovation model. So, we're interested to see whether or not that might spur a bit more dynamism in the Australian economy, after a decade of pretty sluggish productivity growth, dynamism and wage growth under the former government.

MITSOPOULOS: Why can't you leave it, say, up to the market to decide then, if someone is willing to sign up to a non compete clause, then why should government interfere with that?

LEIGH: People don't tend to negotiate over their non-compete clauses because they're in standard form employment agreements that are given to them on a kind of take it or leave it basis, and many workers are not compensated for non-compete clause. I think one of the reasons that they're applying to one in five workers has been this problem that the employment lawyers are just putting them into all of the agreements, whether they're needed or not, and using cascading clauses like, you might say that the worker can't work within ten kilometres for three months or 50 kilometres for six months or 100 kilometres for a year, and then you just leave it to the courts to decide. But few workers ever litigate a non compete clause and when they do, it's incredibly expensive.

MITSOPOULOS: And Minister, on the flip side, you will then get businesses going. Well, hang on a second. If I'm losing some of my good staff who maybe want to go and set up their own business or go to a competitor, doesn't that person have a right to protect their client base and their intellectual property, or whatever it is they feel is at risk?

LEIGH: Such a great question, Nadia, and that's exactly what we're doing in the issues paper, looking not only at the non compete clauses, but other clauses which constrain employees and which are aimed at protecting that confidential data that is owned by firms. We recognise that firms have built up intellectual property and client relationships and we want to work with firms to make sure that can be predicted while not having the pernicious effect of preventing workers from moving for onerously long periods.

MITSOPOULOS: You mentioned other clauses. What are some of those other clauses that you're looking at?

LEIGH: Well, there can be non solicitation clauses where you're not allowed to ask your former coworkers to come with you. You also see no poach clauses in franchise agreements. So, if you're a McDonald's franchisee, you're not allowed to hire workers from another McDonald's. And that, again, can have the effect of dampening down wage growth. Baker's Delight and Domino's have similar clauses in their standard form franchise agreements. So, we need to look at all of these clauses together as for it to come up with the right policy response.

MITSOPOULOS: A sort of related example to that I was reading the other day that somebody had two jobs, was working at Hungry Jacks and also at McDonald's, and one of those companies sacked him because they were saying, well, you can't work at our direct competitors fast you know, another fast food chain that is our direct competitor. Do you think that's fair?

LEIGH: That's a shocking story. No, I don't think it's fair at all. And I think it does indicate the way in which these clauses are being overused. It is very difficult to see what the harm is to an employer in a fast food chain of having a worker working at a competing store. It's not as though they're getting into the any secret information in the other store, and some people are finding that they have to work multiple jobs as they're looking to make ends meet.

MITSOPOULOS: I'll leave it there. Appreciate your time. Thank you so much.

LEIGH: Thanks so much, Nadia.