Workforce losing $7 billion annually due to non-compete clauses — Leigh

The Australian workforce is losing $7 billion annually as a result of non-compete clauses, according to Assistant Minister for Employment Andrew Leigh, who called for further scrutiny of the necessity of such clauses in the country.

Leigh, in an opinion piece for The West Australian, came up with the estimation based on recent research from the e61 thinktank that revealed workers under non-compete clauses earn four per cent less on average.

"Taking account of the fact that one in five workers are subject to a non‑compete clause, this implies that non‑compete clauses are driving down average wages across the board by more than $500 a year," the assistant minister said in the article.

"Across the workforce, that's a $7 billion hit to worker pay."

A 'hard look' on non-compete clauses

Leigh made the remarks as he called for further scrutiny of non-compete clauses.

"In an economy experiencing skills shortages, does it really make sense to ask scarce human talent to languish for months on the bench?" the assistant minister said.

He recalled one "shocking" story unveiled by the Competition Taskforce in the Australian Treasury on the impact of non-compete clauses in the workforce. The taskforce found that a bullied worker was unable to resign from their job due to concerns that the non-compete clause would prevent them from moving to a similar job.

"It's time we took a hard look at whether non‑compete clauses are serving the national interest," Leigh said.

According to the assistant minister, the case against non-compete clauses can be made in terms of equality and employee freedom.

"Employees should have the right to move jobs when they wish," he said.

Firms that want to protect trade secrets can do so directly even without non-compete clauses, according to the assistant minister, citing e61 researchers.

"The researchers contend that non‑disclosure agreements – which protect secrets, but don't stop workers switching jobs – are an effective way of firms safeguarding their confidential information," Leigh said.

"Unlike non‑compete clauses, the research shows that non‑disclosure agreements do not reduce mobility or wages."

Review of non-compete clauses

The use of non-compete clauses in Australian employment agreements is already under review by the government amid concerns over their impact on employment and wages.

Despite research warning about the consequences of using non-compete clauses on wages and talent mobility, the Ai Group said imposing constraints would be a "backward step."

"Any changes that reduce an employer's ability to protect its confidential and commercially sensitive information would be a backward step," said Ai Group chief executive Innes Willox in a previous statement.