Jim Chalmers signals action on non-compete clauses

The Treasurer says new research on employer use of non-compete clauses is ‘confronting’.

Treasurer Jim Chalmers says new non-compete clause data is confronting. Picture: NCA NewsWire / Glenn Campbell

Treasurer Jim Chalmers has signalled government action over employer use of non-compete clauses after “confronting” new data found one in five businesses are using them.

New Australian Bureau of Statistics (ABS) data revealed that 70 per cent of the businesses using non-compete clauses applied them to more than three-quarters of their employees including low wage workers, not just highly paid executives or upper-level managers.

The clauses have been found to apply to hairdressers, early childhood workers, security guards and yoga instructors. The first ABS survey into their use has reinforced earlier research about their prevalence.

The ABS surveyed employer use of restraint clauses in employment contracts, which restrict an employee moving to a competitor, sharing information, or prohibiting a former employee from approaching clients or co-workers.

About 47 per cent of all Australian businesses reported they used at least one type of restraint clause, with 21 per cent of employers using non-compete clauses for at least some of their employees in 2023.

Describing the numbers as “confronting”, Dr Chalmers said non-compete clauses had “grown in our economy to the point that we are very focused on them and very concerned about them”.

“Now we want to make sure that people … if they want to work harder and work more, they can earn more,” he said. “Part of that is making sure that they can find the opportunities that are best for them, and so we are very focused and very concerned about non-compete clauses.”

The ABS found almost one-third of workers were subject to a clause that restricts their ability to “poach” former clients and almost a quarter were subject to a clause preventing poaching of co-workers.

About 40 per cent of large businesses, with 1000 employees or more), used non-compete clauses, while small businesses, at 20 per cent, had the lowest use.

Non-compete clauses were most common in financial services, where 40 per cent of employers used them, and rental, hiring and real estate services where it was 33 per cent.

“There is growing concern internationally that these clauses are increasingly restricting workers from shifting to better paying jobs and may be hampering business innovation and productivity,” Assistant Minister for Competition Andrew Leigh said.

The use of the clauses would remain a top priority of the government’s competition taskforce. Treasury will release an issues paper for public consultation in April.

The ABS findings are in line with research by the e61 Institute which surveyed employees, rather than employers, and found that one in five workers had a non-compete clause.

Dan Andrews, e61 Institute senior policy fellow, said many firms appeared to be deploying restraint clauses indiscriminately. Of firms who use non-competes and no-poach clauses, almost 80 per cent are applying them to more than three-quarters of their workforce.

“This blanket application of non-competes and other restraints has the potential to adversely affect low wage workers who lack the bargaining power to negotiate over these terms,” Mr Andrews said. The use of post-employment restraints could be having a negative effect on job mobility and competition.