The ties that bind: five facts on post-employment restraints in Australia

Authors: Dan Andrews, Michael Brennan and Jack Buckley

Australia’s productivity and wage growth slowdown over the past 15 years has been characterised by a decline in job mobility and firm entry. A recent survey of workers by the e61 Institute suggested that the proliferation of non-compete clauses – where an employee agrees not to compete with their employer after their job ends – could have contributed to this decline.

This note presents five new facts based on a new, high-quality firm-side survey to help policy makers better understand the prevalence, use and economic consequences of non-competes and other post-employment constraints in the Australian economy.

The first two facts highlight the economic relevance of restraint clauses. The next two facts relate to how firms deploy restraints, which has implications for productivity and worker bargaining power. The final fact provides preliminary evidence on the consequences of restraint clauses.

Fact 1: A large share of Australian workers are subject to restraint clauses.

  • Non-disclosure clauses cover between one-half and two-thirds of the Australian workforce with a central estimate of 58%.
  • Between one-quarter and one-third of workers have clauses restricting their ability to poach former clients with a central estimate of 29%.
  •  Roughly one-fifth to one-quarter of the Australian workforce are subject to non-compete and no-poach of co-workers agreements with a central estimate of 21% and 23% respectively.

Fact 2: Firms’ use of restraint clauses has increased over the past 5 years and is expected to increase further absent policy intervention.

Fact 3: Restraints are highly prevalent in knowledge-based service industries, potentially jeopardising the allocation of talent.

Fact 4: Many firms are deploying restraint clauses indiscriminately, potentially adversely affecting low wage workers who lack bargaining power.

Fact 5: Firm entry and job mobility rates appear to be lower in industries where restraint clauses are more prevalent.