Bianca, a young hairdressing apprentice, didn’t feel she was receiving enough training. So she looked at switching jobs. But it turned out that Bianca’s employment agreement barred her for working for any competitor within 10 km for a year.
There’s also Betty, who was terminated from her job as a store manager. Even although she had been fired, she was still bound by a clause in her employment agreement that prevented her from working anywhere in the Northern Territory. If she wanted to work as a store manager anytime in the next 12 months, Betty would have to move interstate.
And then there’s Madison, who worked at a consulting firm. After experiencing sexual harassment and discrimination, she negotiated a resignation. But the firm still did its best to uphold a clause in her employment agreement that prevented Madison from taking a job with any client of her former employer.
These stories, collected by the NT Working Women’s Centre and JobWatch, a community legal centre, were among the submissions responding to a Treasury issues paper about non‑compete clauses. Employee representatives explained how non‑compete clauses are impeding workers from moving to better jobs in a wide variety of occupations, including youth workers, beauty therapists, retail workers, Pilates instructors, cleaners, factory hands and motor mechanics.
Non‑compete clauses are rife in the Australian economy. Non‑compete clauses don’t just apply to the programmer finding software bugs, but also to the pest inspector squashing bugs. Non‑compete clauses don’t just apply to the person advising on corporate rebranding, but also to the person advising on personal fashion. Non‑compete clauses don’t just apply to the tax expert massaging the company’s finances, but also to the therapist massaging tired shoulders.
According to think tank e61, 22 per cent of Australian workers have a non‑compete clause in their employment agreement. On the latest labour force figures, that adds up to a whopping 3.1 million employees who are bound by non‑compete clauses from moving to a better job.
What happens if workers can’t move jobs as easily? One big effect is that wages don’t grow as fast. Researchers have found that workers who move jobs receive wage increases that are 9 per cent larger than workers who stick with the same firm. For the average worker, that translates to an annual pay bump of $5,700. For young workers, mobility matters even more. Young job switchers earn $7,500 more than young job stayers.
Wage stagnation was a persistent problem under the former Coalition government. For their 9 years in office, from 2013 to 2022, real wages barely grew. Part of the problem was a deliberate undermining of the employment safety net, and the ability of workers to act collectively to raise wages. But part of the problem may also have been that job switching became harder.
When workers aren’t free to move, you get the same sorts of problems that arise in a one‑company town. As the song ‘Company Town’ puts it, ‘The company owns every piece of ground\ And everybody in the company town’. Firms that ran company towns weren’t slave owners or feudal lords, but they were able to get away with keeping wages lower than they would otherwise have been. The freedom to switch jobs is an employee’s best guarantee of being paid what they’re worth. Conversely, when workers can’t easily switch firms, wages suffer.
The call for views on reforming non‑compete clauses has just closed, and the submissions will help guide any reforms we make in this area. The Australian Government is also looking at the actions other countries are taking. Some countries ban non‑competes for low‑paid workers. Other countries require workers to be paid during the non‑compete period. A few countries ban non‑competes completely.
Right now, non‑compete clauses are making some workers unhappy, unproductive and underpaid. The stories of Bianca, Betty and Madison are a reminder of the human cost of locking workers into the wrong job. Making it easier for them and 3 million other workers to switch to a better job might be a way of delivering a fairer society and a more productive economy.