Baristas and babysitters are now being caught up in non-compete clauses, says Assistant Minister for Productivity Andrew Leigh
Non-compete clauses act as "intimidation" and control people's choices when making decisions about changing jobs, acccording to Assistant Minister for Productivity, Competition, Charities, and Treasury Andrew Leigh.
In a strongly worded speech making the case for the Federal Government's plans to ban non-compete clauses for employees earning less than the Fair Work Act's high-income threshold, Leigh said the clauses had gone from a narrow legal instrument to a broad restraint on labour mobility.
Leigh told the Recruitment and Staffing Industry Summit on Tuesday that non-competes were once used for senior executives plotting mergers but were now turning up in contracts for baristas and babysitters. An estimated 3 million workers are impacted by the clauses.
"Over the past decade, there has been a quiet proliferation of clauses that restrict workers from moving to new jobs. Non‑compete clauses, once confined to senior executives with access to sensitive commercial information, are now appearing in contracts for teachers, tradespeople, technicians and carers," he said.
"In some workplaces, the clause is inserted automatically, copied and pasted from an old contract without much thought. It may never have been discussed during hiring. Yet it can have lasting consequences for a person’s career.
"For many workers, the first time they notice the clause is when they try to change jobs and are told they cannot. The effect is to trap them in roles that may no longer fit their skills or family circumstances."
Leigh said workers who change jobs typically receive pay rises of about 9 percentage points higher than those who stay in the same job.
"Non‑competes are no longer about protecting trade secrets. They are about controlling people’s choices. They prevent workers from using their skills and experience where they are most valuable, and they hold back sectors that already face staff shortages," he said.
"In short, non‑compete clauses act like sand in the gears of the labour market. They do not have to be enforceable to be effective. Their power lies in intimidation, not legality."
Non-compete clause ban
A non-compete clause is a restraint clause that prohibits employees from joining a competitor or setting up a competing business after they leave an employer.
Recent research, however, warned that such restraints hamper job mobility and keep wages low.
The Federal Government announced earlier this year its plan to ban non-compete clauses for employees earning under the Fair Work Act's high-income threshold, currently $183,100, starting from 2027.
The ban will apply only to new or varied contracts after 2027, according to Leigh. A long lead time is also provided so employers can adjust their practices and update their contracts.
"Our approach strikes a balance. Businesses will still be able to protect legitimate interests such as intellectual property, confidential information, and client relationships. What will no longer be acceptable are clauses that prevent people from using their own skills to earn a living," the assistant minister said.
'Chilling effect' of non-competes
But businesses have pointed out that existing Australian laws only allow the enforcement of non-competes when they are "reasonable and necessary" to the interest of the employer.
Leigh, however, cited that the presence of a non-compete clause is enough to discourage workers from changing jobs, even if they have the right to do so.
"The result is what economists call a chilling effect," he said.
"Recruiters see it too: candidates who hesitate to apply because their contracts contain ambiguous restrictions. Businesses that are reluctant to hire someone with experience at a competitor, for fear of being drawn into litigation."
