The fine print that makes it easier to quit your job – and earn more money
Australian workers will be free to change jobs for a pay rise more easily under an Albanese government proposal to ban non-compete agreements that prevent staff defecting to other employers or starting their own business.
Businesses will be barred from forcing non-compete clauses on staff earning less than $175,000, which represents about four in five workers, after the contracts spread from industries such as the law to low-paid jobs such as hairdressing, where they delay job switches by months or years.
The government’s non-compete ban is the latest move in its campaign to bolster employee protections.Credit: Digital Vision
About 20 per cent of the nation’s workers have signed a non-compete agreement, according to data released by the Australian Bureau of Statistics last year, which research from economics consultancy e61 has found could be holding the average worker’s wage back by about $2500 per year.
The policy, which only applies to new employment contracts, will form a key part of the Albanese government’s plan to make the economy more productive and get wages moving, because workers moving to new jobs tend to earn more and put their skills to better use.
But it sets up a clash with businesses who use the contracts to retain skilled staff, stop rivals poaching their employees and ward off the prospect of former employees taking sensitive information or key clients with them to rival businesses.
The government’s non-compete ban is the latest move in its campaign to bolster employee protections, which has included creating a right to disconnect, allowing unions to bargain for pay across multiple employers, and setting up a tribunal to set conditions for the gig economy.
In a move that will escalate business anger, Treasurer Jim Chalmers said the government was contemplating going further and reviewing non-compete clauses for workers on higher incomes, as well as other contracts banning staff from taking clients and colleagues with them to a new job.
One option raised by experts involved in a Treasury-commissioned review of employment restraints is limiting the duration of non-competes for highly paid staff or requiring employers to compensate them.
That could affect professionals such as bankers, software engineers and lawyers, who have traditionally had to sign non-compete agreements in exchange for high wages in jobs where client relationships and corporate knowledge are key.
UNSW professor Richard Holden, who supports removing non-competes for low-level staff, has said previously that sophisticated workers and employers could negotiate fair non-compete agreements.
“If part of that is saying, ‘We, the board, the company, will give you various things, but you can’t compete with us for six months after you go’, I don’t think we should really question that,” Holden said in a recent interview in The Australian Financial Review.
Chalmers said in his budget speech that non-competes were holding back workers.
“More than 3 million Australians are captured by these clauses, including childcare workers, construction workers and hairdressers,” Chalmers said. “People shouldn’t need to hire a lawyer to take the next step in their career.”
In one example the government has previously highlighted, a 17-year-old dance teacher was harassed at work, and then prevented from moving to another studio in the neighbourhood.
The non-compete in that example is already likely to be unlawful because of the severity of the ban, the worker’s youth and the harassment, but even invalid non-competes can take time and money to challenge in court.
The government will need to legislate to ban non-compete agreements and has said its planned changes will come into effect from 2027 after consultation on exemptions and penalties. It also aims to ban agreements between companies to avoid poaching each other’s staff and fix wages.
The treasurer, along with Workplace Relations Minister Murray Watt and Assistant Minister for Competition Andrew Leigh, said Productivity Commission modelling showed the changes could add $5 billion or 0.2 per cent to GDP annually.
The $2500 potential pay boost estimated by the e61 Institute is based on workers changing jobs winning a 4 per cent pay rise on average, or $2500 for an employee on a median income.
But research by e61 and other groups has found that professions such as managers, real estate agents and financial services staff, who may earn too much to be protected by the non-compete ban, are most likely to have non-compete clauses. Lower-wage professions such as childcare workers, yoga instructors and IVF specialists are also exposed.
The Biden administration’s Federal Trade Commission announced it would ban non-compete clauses last year.
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