Non compete clauses are having an increasing impact on the economy: Report

New research from the Federal Treasury and the Reserve Bank has revealed the ‘true cost of reduced competition’ since the year 2000, with Competition Minister Andrew Leigh revealing the findings during the Competition Policy for the Modern Economy Conference. 

During his address Minister Leigh outlined that non-compete clauses, which can prevent employees working for a competitor, mean affected staff earn four per cent less on average than someone not hindered by such restrictions.

Almost half of all Australian workers now have so-called restraint clauses as part of their employment agreements, the report notes. According to the ABS these include: 

• Non-disclosure (45.3 per cent) 
• Non-compete (20.8 per cent) 
• Non-solicitation of clients (25.4 per cent) 
• Non-solicitation of workmates (18 per cent) 

Importantly for the early childhood education and care (ECEC) sector, the findings note that non compete clauses are now becoming more prevalent in the community and care sector, with professions such as ECEC, aged care and disability support work now impacted by clauses which prevent them from taking existing clients with them to a new business, stop working in the same industry for extended periods, and non-disclosure requirements.

In an ECEC context, these clauses may include things like not being able to work with a rival ECEC service within a certain kilometre radius, not being able to use programming templates or other resources created in a new role, not approaching coworkers to leave with the resigning employee to work for a competitor, or agreeing not to have contact with children or families introduced to the educator through their work once they have resigned. 

The research puts the estimated cost of reduced competition since 2000 at between 1 and 3 per cent, or about $25 billion to $75 billion or between $2500 and $7500 per household.

ECEC, along with GP clinics, aged care services and dental practices were singled out in the report as being ‘the next competition battlegrounds,’ the Minister said. 

“Extrapolating across the workforce, and accounting for the fact that one in five workers are subject to a non-compete clause, this implies that non‑competes are driving down average wages by more than $500 every year – equivalent to $7 billion annually,” he continued.

The government has set up a competition taskforce which is examining almost all aspects of the economy. This taskforce, Minister Leigh revealed, is exploring ‘competition hotspots’ in conjunction with the Australian Competition and Consumer Commission (ACCC). 

ECEC, along with aged care, dental care and GPs, was identified by the Minister as being parts of the economy where anti-competitive pressures are growing. Aged care and ECEC, he continued, are “two of the fastest growing parts of the economy,” with government funding backing new services and higher wages to attract and retain staff. They are also areas with low productivity growth.

Of the almost 400,000 jobs created over the past year, 216,000 have been in either the education or health sectors that include aged care, the National Disability Insurance Service and ECEC.

To access the Minister’s remarks please see here.