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Ordinary workers on less-than-average wages are being told they cannot work in the same industry, the same state or even within Australia under employment contract clauses that the federal government believes are turning the national economy into a version of the Monopoly board game.
In one case revealed in a submission to the government’s review of non-compete clauses, a health worker earning less than $80,000 discovered a clause in their contract that indefinitely barred them from taking a job in the same industry in Australia and New Zealand.
Many workers have been stung by non-compete clauses in their employment contracts.Credit: iStock
A laundromat manager made redundant in a small regional team was presented with a letter claiming she could not work in the same industry in the same town, even though she had never signed such a non-compete clause.
A young graduate engineer earning $63,000 discovered a clause in their employment contract that prevented them from working anywhere else in Victoria for the next 12 months if they left the company.
The government plans to ban most non-compete clauses, which affect up to half of all workers, by 2027. Clauses can include restrictions on working in a similar industry to non-disclosure requirements.
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In a speech to the Sydney Institute on Tuesday, assistant competition minister Andrew Leigh will reveal that in planning for the 2027 ban, the government has found a swathe of such restraints on low- and average-pay workers.
Leigh will say the submissions show the development of so-called “cascading clauses”, in which a number of different restrictions are inserted into work contracts. If one clause doesn’t stop a worker from moving to a new business, another clause will.
Such clauses might include restrictions on people working within a similar industry in a particular state, a region or even a five-kilometre area of the employees’ current workplace.
“From the point of view of a worker reading their contract, the message is unmistakable: you are boxed in. Faced with a clause that looks like it was drafted with a dartboard, most people simply will not risk moving at all,” he will say.
Some large businesses, particularly those that employ people with specialist skills or have access to company intellectual property, have pushed back at the government’s non-compete clause ban. They have argued it could mean losing valuable staff or company secrets to competitors.
Non-compete clauses are turning up in occupations from bricklaying to childcare.Credit: Getty Images
But Leigh will argue non-compete clauses have permeated the entire economy, with childcare workers, bricklayers, retail workers and nurses being caught up by restrictions. The clauses suppress wages, limit job mobility and slow down the spread of ideas.
He will say that overall productivity is being restricted by these clauses and a dearth of competition in key parts of the economy.
“We want an economy that looks less like Monopoly, where one player wins the lot, and more like Lego, where everyone can build and create. And unlike Monopoly, an economy built on Lego doesn’t end with someone flipping the board in frustration,” he will say.
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Research in Australia suggests people with non-compete clauses earn 4 per cent less, or about $2500 a year, than those without such clauses.
A new study out of the United States suggests banning non-compete clauses there would lift average wages by between 3.5 per cent and 13.7 per cent. It found that women and non-white workers face double the wage penalty caused by non-competes than other workers.
Submissions on the government’s plan revealed that many non-compete clauses are affecting people who have no trade secrets to protect. In many cases, the clauses are so broad that it appears they have been copied from other employers.
The submissions also suggested that while employees might suspect a clause was legally unenforceable, the threat of court action was enough to put them off moving to another job.
“They are not about safeguarding sensitive information. They are about scaring people away from moving,” Leigh will say.
“Employees shared story after story of contracts written with such sweeping restrictions you would think they were drafted for Cold War spies, not everyday workers.”
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