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‘A violation’: Non-compete clauses shackle workers to employers

Gig workers are among the top number of employees subject to non-compete clauses.

Gig workers are among the top number of employees subject to non-compete clauses. Photo: AAP

When signing on to a new job, you might be tempted to give the contract a quick skim, assuming there won’t be much you haven’t seen before.

But you should keep an eye out for a tricky clause that is increasingly finding its way into Australian employment contracts, and could have serious consequences for your career.

A staggering 22 per cent of workers who changed jobs in the past 12 months were subject to a non-compete clause (NCC), research compiled by the economic research-focused e61 Institute found.

The real figure could be even higher, as a near-identical US survey found some workers might not know whether they are subject to NCCs.

An NCC is a clause of a contract that means an employee agrees not to work for a competitor in a similar industry or area for a period of time after their job ends.

Growing concerns

The latest research was commissioned by the government after Competition Minister Andrew Leigh asked the Australian Competition and Consumer Commission (ACCC) and Treasury for advice on the extent of NCCs in Australia on the back of growing concerns overseas that the clause is hampering job mobility and wage growth.

In Australia, non-compete clauses are only enforceable if they can be shown to reasonably protect a legitimate business interest, but the research found NCCs are now a default option in many employment contract templates – which was not the case 15 years ago.

Jim Stanford, director at The Australia Institute’s Centre for Future Work, said the increasing prevalence of the “absolutely repugnant” clauses proves the labour market is unbalanced and exploitive.

He said employers are able to use NCCs as a tactic to limit workers’ job options and keep wages low.

great resignation

Non-compete clauses are being used as a tool to prevent employees leaving. Photo: Getty

NCCs have historically been used as a method to protect corporate secrets in cases where a senior employee with access to proprietary information leaves a company.

But the clauses can now be found in the employment contracts of employees like childcare workers, yoga instructors, gig workers and labourers.

“[An NCC is] a violation of human freedom, and it’s an aggressive wage suppression tactic which helps to keep wages unnaturally low,” he said.

“This whole practice of non-compete clauses, honestly, is a step towards indentured servitude. It has no place in a free society like Australia.”

No-win situation

Aaron McEwan, Gartner vice-president of research and advisory, said with wages failing to keep up with inflation for years, getting a new job is one of the few ways Australians are able to get a pay rise.

An NCC therefore hampers workers’ ability to earn more.

But while employers may also be using these clauses as a method of retaining workers who will otherwise have difficulty finding a new job, it could end up backfiring.

McEwan said most organisations Gartner speaks to say they have a significant talent and skills deficit; working for other organisations is one way people could increase their skills.

“I think increasingly, organisations should start looking at, not just removing [NCCs], but even going so far as to allow their employees to, for example, take gigs with other companies whilst they’re still employed,” he said.

“The benefits to organisations that encourage that type of mobility are actually pretty significant, particularly when it comes to increased knowledge, capability and skill sets.”

Organisations could also have trouble attracting new employees as awareness grows over the increasing presence of NCCs in employment contracts, he said.

But after the pandemic fuelled a spike in job mobility, McEwan expects NCCs will continue to become more widespread until the government decides to intervene.

Calls for a ban

The issue is on the federal government’s radar, as evidenced by the commissioned research, but it hasn’t gone so far as to propose a ban on the clause.

Stanford said Australia needs to follow the US in working on a ban.

About one in five American workers are bound by NCCs, costing the workforce up to $US296 billion ($435 billion) per year.

The US Federal Trade Commission has issued a proposed rule that would ban NCCs, which would include a requirement for companies to rescind previous NCCs.

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