A new issue paper from Treasury’s Competition Review examines whether non-competes and other constraints impede employment possibilities.

A recent poll by the Australian Bureau of Statistics (ABS) found that 46.9% of questioned firms used some sort of restriction clause, even for non-executive staff. 

Furthermore, the poll found that 20.8% of firms utilise non-compete agreements for at least a fraction of their workforce, while 68.2% do so for more than 75% of their employees.

In Australia, employment mobility has dropped during the last three decades. This is not a unique challenge; other sophisticated economies have faced a similar predicament. 

Although restriction clauses were not the primary cause of the reduction (an older population and growing market concentration in some sectors also contributed), the Competition Review topics paper (due May 31, 2024) will focus on the impact of restraints.

Reduced job mobility has an economic impact on wage growth and innovation because it impedes the entrance of skilled workers into the market. Productivity in Australia has declined over the last two decades, making it a serious problem.

“A non-compete clause hinders competition among businesses by discouraging employees from leaving their current positions and by erecting an obstacle to the entry of new businesses and the expansion of existing ones,” according to the report.

From a business standpoint, this is critical: preventing key personnel from leaving for competitors, limiting the possibility of a “mass exodus” of employees to rival organisations, preventing clients from hiring key personnel, and protecting the company’s value by preventing employees from departing with customers acquired at a financial cost to the organisation.

Because the majority of constraints are not disputed, their impact seems to be a psychological deterrent. Legal Aid NSW handled 115 trade restraint complaints between 2020 and 2023. A single corporation took legal action against a former employee. A supplementary research demonstrates that legal proceedings taken by employers in court are virtually always unsuccessful.

Either ban restraints for workers earning less than a given threshold and set a time restriction on restraints for higher-paid employees, or limit restraints to a certain length while defining a worker’s pay level during that period. This seems to be the predominant worldwide trend.

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