ABC CANBERRA MORNINGS WITH ADAM SHIRLEY
TUESDAY, 20 JUNE 2023
SUBJECTS: New research on non-compete clauses in Australia
ADAM SHIRLEY (HOST): Last couple of jobs you've had, where did you work? Public or private sector? And if you were there for a bit, did you learn most of what you now know, the skills you have from the organisation or vice versa? Do you feel you brought the skills and the knowledge that added to them? I ask because not well-known, but pretty prevalent non-compete clauses cover a heck of a lot of people in this town and in others and they could well restrict what you can and can't do if you are an independent worker, self-employed when you've previously used those skills with another employer. Andrew Leigh, Assistant Minister for Competition, wants further attention on this. He's also the Federal Member for Fenner and he’s with us this morning. Dr Leigh, good morning to you.
ASSISTANT MINISTER FOR EMPLOYMENT, CHARITIES, COMPETITION AND TREASURY DR ANDREW LEIGH: Good morning, Adam. Great to be with you and your listeners.
SHIRLEY: Yeah. What struck me about this is many people might not understand just how common non-compete clauses are. In very basic terms, how do they affect a lot of people in Canberra?
LEIGH: Well, a non-compete clause prevents you from quickly moving to another employer. Their original rationale was to allow employers to protect trade secrets or client relationships. But increasingly, many economists take the view that they're being used by employers to reduce workers’ bargaining power and that non-compete clauses, by making it harder to switch jobs, might be reducing wage growth and dampening down productivity growth. Job switching is one of the best ways in which people get wage gains over a career. If you look at someone's career, the biggest jumps in pay tend to be when someone moves from one employer to another. So, anything that makes that harder potentially then dampens down wages and might be a factor in the sluggish wage growth we've seen over the last decade.
SHIRLEY: I get it at the executive level, when there is more access to the high-level information, the trade secrets, but at what kind of levels are these non-compete clauses affecting people?
LEIGH: Oh, they're left, right and centre. I've spoken to industrial lawyers who say they're routinely showing up in the employment agreements of early childcare workers. The e61 research led by Dan Andrews has talked about non-compete clauses among yoga instructors and IVF specialists. The survey that's out today shows that 22% of workers are bound by non-compete clauses, including 43% of gig workers, 19% of people who've got a vocational qualification, and 14% of people who are clerical or administrative workers or labourers. In the United States they're showing up among gardeners and tree fellers. They're really proliferating across the economy because, let's be honest, Adam, no one negotiates over the specifics of their employment agreement.
SHIRLEY: So, does this also have the consequence of stopping people moving around for different work, maybe building their skills through their early years?
LEIGH: Yeah, you've got it. So, if you're a new firm starting up, what you need is new workers and that means getting workers to switch from another firm. But if those workers are bound by non-compete clauses, it's going to be harder for them to move. Everyone's used to a bit of a bump in the road between jobs, but if you've got to take six months or a year out of the labour market, that's going to deter a lot of people from moving to a new firm. And if that new firm is more productive, if it's got better management know-how or better technology, then society as a whole could be missing out on the productivity gains from job switching as a result of these non-compete clauses. And the thing is, they don't even have to be enforceable. If there is a non-compete clause, most workers are just going to stick to it. They're not going to think, oh, I'll chance it and take the boss to court. That's not how most of us roll.
SHIRLEY: And how many people are subject to them without even knowing it?
LEIGH: Well, I think there's potentially many more. So, one of the points that the e61 research makes is that 22% of workers say they have a non-compete clause in their employment agreement. But because most of us don't know the specifics of our employment agreement, the true number could actually be significantly higher. So, there'll be further data out during the course of this year that I hope will allow us to shed a brighter spotlight on this important issue.
SHIRLEY: It’s five to nine. Dr Andrew Leigh, Federal Member Fenner and Assistant Minister for Competition, is with us. Adam Shirley with you on a chilly Canberra morning. We're not yet into zero or positive territory temperature wise. You want the Australian Competition and Consumer Commission to have a close look at this, Dr Leigh, what is it you want them to find out, and could that lead to some sort of legislative change?
LEIGH: Both Treasury and the Competition watchdog are looking at what might be done. We're aware that non-compete clauses might have a reasonable use among high paid executives where it's hard to have confidentiality agreements, but we're also looking at the experience overseas. The US Federal Trade Commission, which is America's counterpart to the Australian Competition and Consumer Commission, has proposed a nationwide ban on non-compete clauses, arguing that they impact 30 million Americans and that a ban would boost wages by nearly $300 billion a year. So, with the United States looking carefully at non-competes, I think any serious Australian policymaker needs to do the same. This will require collaboration with state and territory governments, since non-competes, or so-called restraints of trade, have tended to be regulated at a state and territory level. So, as we always do, we'll collaborate with other jurisdictions on this.
SHIRLEY: Conversely, though, in this day and age, where people do tend to move more freely between employers and jobs, if you loosen these sorts of rules, could this make it awfully hard for bosses, for companies who mentor and bring up new workers to hang on to them for any degree of time? And then that hits their bottom line and their ability to attract people?
LEIGH: Adam, I think it's always incumbent on employers to be offering the very best option to their workers. You can't blame a worker for moving to a better job, and if workers are being impeded unfairly from moving to better jobs, that could not just hurt their wages, but also spending in the economy and productivity right across society. So, we need to get this right in the interests of society as a whole. This e61 research is the very first time we've known anything about the prevalence of non-compete clauses in Australia. The rate is 18% in the US, and everyone had been saying, well, it's got to be lower in Australia. Now this new study comes out saying, no, actually it's higher in Australia. And some industrial lawyers are just saying, well, you put them in all the time because no employee will ever argue about a non-compete clause. They'll negotiate on the wage, maybe, but they won't negotiate over their non-compete.
SHIRLEY: Well, I'm guessing a few people today might be checking whether they have one and what it restricts them from doing. We'll leave it there for today. Thank you, Dr Leigh.
LEIGH: Thanks so much, Adam.
SHIRLEY: Dr Andrew Leigh is the Assistant Minister for Competition and Federal Member for Fenner.