One in five workers are bound by non-compete clauses – yes, even in ECEC

Freya Lucas

Jun 26, 2023

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Non-compete clauses are common in many sectors and industries, but many in early childhood education and care (ECEC) may be unfamiliar with the term, and what it means for them in a competitive job market.

Non-compete clauses are common, and cover approximately one in five workers in Australia. While they were once only seen in senior corporate positions, they have now found their way into many other spheres, including ECEC and clerical roles, according to a recent review conducted by economists at the e61 Institute.

The review looked at the prevalence of employment restraints - restraints which outline what a previous employer can and cannot do once they have left their role - and how this is impacting the employment market.

Non-compete clauses

A non-compete clause is a line (or lines) which are placed in an employment contract, and which outline what a previous employee is and is not able to do once they leave their position.

In an ECEC context, it may be a line/clause which says the employee is prevented from working for a competitor for a specific period once their employment ends.

Example: Jane is an early childhood educator, who works with Happy Monkeys as a Diploma educator. She is unhappy in her role, and when a new service opens in the local area which is paying above award and which offers high staff discounts, she hands in her notice at Happy Monkeys.

However Jane’s employment contract has a non-compete clause which states that she is unable to work for a competing business within 25 kilometres of the service for a period of 12 months.

Should Jane elect to proceed with the new role anyway, she exposes herself to risk of legal action for breach of contract.

Why do non-compete clauses exist?

Non-compete clauses exist to protect employers, by preventing workers who have benefited from professional development opportunities, employee growth, and access to intellectual property of the business (such as understanding a certain programming format, the way in which the ECEC business markets itself, or even the way in which policies are written and developed) from taking that knowledge with them and using it to benefit another business in the same field.

Former employees could also use the knowledge from one role to start a competing business. For example, if Jane was to leave her position, and start her own service, encouraging families to follow her to the new centre.

Non-compete clauses are designed to act as a deterrent, but must be considered by a court to be reasonable in order to be enforceable.

Australian Competition and Consumer Commission asked to weigh in

The Australian Competition and Consumer Commission (ACCC) has been asked by Assistant Minister for Competition Andrew Leigh to provide him with advice about the impact of non-compete clauses, and what action (if any) the Government should take to address them.

A lack of competition has been cited as a possible reason for Australia’s declining productivity and job mobility, and Dr Leigh has concerns that non-compete clauses may be impacting, particularly among younger workers, aged between 25 and 39 years of age.

“There’s a growing body of evidence suggesting that non-competes prevent workers from freely switching jobs, which means they miss out on the wage gains and better working conditions that typically come with a new job,” he shared with The Australian Financial Review.

US precedent, research findings

Discussion about the intersection of non-compete clauses and the world of work is at the forefront of industrial relations discussions after the United States competition regulator proposed to ban them earlier this year, after research showed that up to 40 per cent of workers impacted by these clauses turned down jobs as a result of the presence of non-compete clauses in their contracts.

This is consistent with the findings of the e61 researchers, who noted that throughout their research allied professionals anecdotally shared that these clauses have become more prevalent over time, and are now seen as “a default option”.

e61 economist Dan Andrews said restricting non-competes would “break the shackles on worker mobility to higher productivity and paying firms, supporting durable real wage growth”.

“That’s the ultimate pro-worker productivity-enhancing reform, which would help the government reposition itself at a time when Australia’s productivity crisis is hitting the hip pocket.”

Psychological impact on employees

Even when the non-compete clauses are not enforceable, Dr Leigh said, “workers are likely to be reluctant to challenge them in court, potentially creating a chilling effect on their ability to move to a better job.”

The ACCC has indicated that if the data was to show that non-compete clauses were impacting more than just senior professionals that they “may need to be looked at from a policy point of view”.

Access the e61 findings here. Some information in this piece was drawn from a piece from the Australian Financial Review, which may be accessed here.

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