A non-compete clause is a clause of a contract, where an employee agrees not to compete with an employer – in a similar industry or area for a period of time – after their job ends. Non-compete clauses have traditionally been justified as a means of protecting legitimate business interests but there are increasing concerns that such clauses are being used to stifle job mobility and competition.
Against this backdrop, Australia’s Competition Minister Andrew Leigh recently asked the Australian Competition & Consumer Commission and Federal Treasury for advice on the competitive impacts of non-compete clauses.
To provide the first Australian evidence on the prevalence of non-compete clauses, we leverage the McKinnon Poll – an online survey of 3000 respondents. It reveals that:
- at least one in five Australian workers are subject to non-compete clauses, including many low wage workers who lack bargaining power such as clerical workers and labourers.
- one-half of the workforce bound by some type of post-employment restraint, whether it is a non-compete or clauses that prevent the disclosure of confidential information, solicitation of clients and poaching of co-workers.
This picture is consistent with qualitative evidence, which suggests that non-compete clauses:
- now apply to many outward facing customer roles – childcare workers, yoga instructors and IVF specialists – in addition to senior executives in law, finance and business services
- have become more prevalent over time, and are now a default option in many employment contract templates
Non-compete clauses appear just as prevalent in Australia as the United States, where the Federal Trade Commission’s proposal to ban non-competes has received bipartisan support. This is significant in light of the decline in job mobility in Australia, as well as international evidence which shows that non-compete clauses stifle job mobility, wages and productivity growth.