The use of non-compete clauses, traditionally seen in executive level jobs, is moving into the realm of lower-paid employment with negative consequences.
A new report by e61 Institute found the extensive use of non-compete clauses was associated with lower wages and fewer workers moving between jobs.
E61 Research Manager Ewan Rankin said as many as one in five Australian workers have a non-compete clause in their contract which stopped them competing with their employer in a similar industry or area for a period of time after their job ended.
Mr Rankin said this now included many lower-wage workers, such as labourers and childcare workers.
He said the new research found that workers at firms that used non-compete clauses extensively were paid four percent less on average than similar workers at similar firms that did not use non-competes.
“Workers in lower-skilled occupations faced worse outcomes.
“After five years in a job, those at firms using non-compete clauses were earning 10 percent less, despite starting on a similar wage.
“Our research shows that workers at firms using non-compete clauses experience slower wage growth over the first few years of their employment.”
Mr Ranking said this was likely because the clause reduced the workers’ power to bargain for higher wages by limiting their future employment options.
“The reduction in wages is particularly acute for lower-skilled workers, likely because they benefit less from any positive effects of non-competes such as encouraging the firm to invest in worker training.”
He said the research also found that workers at firms which increased their use of non-compete clauses between 2018 and 2023 were subsequently 10 percent less likely to change jobs and if they did change jobs, workers were more likely to take off six months or more in-between.
“The results are consistent with a view that the rising use of non-compete clauses has contributed to lower levels of job mobility and wages growth.
“By locking people into jobs that may not be the right fit for them, non-competes may also be damaging economic growth and innovation.”
Read the full paper: Non-compete clauses, job mobility and wages in Australia
