Non-compete clauses are leaving workers less paid and missing out on promotions

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The economic think tank analysed data from the Australian Bureau of Statistics (ABS) data as part of its research into non-competes.

Employees of companies that use non-compete clauses (NCCs) are paid less and promoted less than other workers, according to the e61 Institute.

One in five Australian workers has a non-compete clause in their employment contract.

The economic think tank analysed data from the Australian Bureau of Statistics (ABS) data as part of its research into non-competes.

Non-competes are a type of clause included in employee contracts. They are used to block employees from working for a competitor for a certain period after they leave a company.

e61 also found an increase in the number of Australian companies using of NCCs over the last five years.

Non-competes

Non‑compete clauses are conditions in employment contracts that prevent an employee from working for a company’s competitor in the near future.

They usually dictate how long an employee must wait before starting a new job and can also prevent employees from working at companies within the same industry.

These agreements are used by companies to protect private business information an employee may take with them. However, they are not always legally enforceable.

Outcomes

e61 analysed employee retention rates at companies that increased their use of NCCs between 2021 and 2023.

It found NCCs were “successfully deployed” in response to high rates of turnover among employees.

However, it found this is more common in “lower-skill” roles, (jobs that don’t generally require post-school qualifications).

By comparison, e61 said high-skill workers with NCC contracts experience “virtually no decline in switches within industries,” e61 said.

Workers at companies that use NCCs are paid an average of 4% less than other employees, e61’s analysis of ABS data found.

It found reduced wages are “particularly acute” among “lower skill occupations”

e61 Research Manager Ewan Rankin said NCCs can reduce “the workers’ power to bargain for higher wages by limiting their future employment options.”

After five years, they are paid about 10% less than similar employees who started on a similar wage.

Union

The Australian Council of Trade Unions said NCCs could be stopping four million workers from moving to a higher-paid job with a competitor.

ACTU Secretary Sally McManus described NCCs as a “wage impression tool” and called for them to be scrapped.

“Banning non-compete clauses would also be a huge boost to productivity, as workers are more easily able to spread their ideas, skills and experience across our economy,” McManus told TDA.

Government Response

The Federal Government has previously expressed concern about the growing use of NCCs and their potential to be used to limit competition.

Earlier this year, the Treasury established an inquiry to take “a serious look” into NCCs. It sought feedback from workers and employers.

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