[Australia] Non-compete clauses are holding wages back

Australia’s Labor Party has accused franchise businesses of cartel-like behaviour for agreements not to poach each other’s employees, stating that fast-food workers could earn more if permitted to change jobs more easily, The Guardian reports.

Andrew Leigh - assistant minister for competition - gave a speech last week arguing that reforms aimed at preventing practices that stop workers from changing jobs could help workers win bigger pay rises.

The government will reportedly launch an issues paper about regulating the non-compete clauses restricting employees from working for employers in the same industry and location for a set period.

Mr Leigh said that in the US, UK and European Union “agreements between competitors” such as not to poach workers or suppress their wages are “cartel behaviour, and illegal”, raising questions about whether they should be outlawed in Australia.

Non-compete clauses and no-poach agreements could prevent workers from gaining pay rises of $5,700 or more, ordinarily available when employees switch jobs.

According to Mr Leigh, non-compete clauses affect a diverse range of employees: from breakdancing instructors to disability support workers and boilermakers.

He explained that non-compete clauses are intended to protect confidential information yet they are “the bluntest tool in the shed” for that job. International evidence suggests they are “harming job mobility, innovation and wages growth”, the assistant minister said.

Mr Leigh reportedly said that non-compete clauses have become “commonplace”. New Australian Bureau of Statistics data found one in five Australian businesses use them for their employees.

Their use “was not limited to upper‑level managers or executives but included all workers of varying incomes”, he said.

“Businesses with more than 1,000 employees were twice as likely (40%) to have employees with non‑compete clauses than those with fewer than 20 employees.

“Big, incumbent businesses can use non-compete clauses and other tools to maintain their market power and prevent their competitors from growing or new startups emerging.”

Mr Leigh said the clauses can have a “chilling” effect, “stopping workers from seeking out a better-paying job or from starting a new business”.

He also referenced no-poach agreements, saying they “are often made in secret and verbally, so workers don’t know they are impacting on their wages and mobility”.

“In a no-poach scenario, two or more businesses agree to not solicit or hire each other’s current or former workers.”

Mr Leigh said such agreements are common where employers compete for the same talent, such as in the US tech sector or other contexts including franchises in Australia.

“Major franchises such as McDonald’s, Bakers Delight and Domino’s have standard clauses that prevent franchisees from hiring workers in other stores.

“Exemptions for certain anti-competitive agreements may mean these no-poach agreements don’t fall foul of competition laws,” he added

The issues paper reportedly stated that, while “cartels are prohibited” by competition law, there are exemptions, including agreements about “remuneration, conditions of employment, hours of work or working conditions of employees” and independent contractors.

“Consequently, even if two competitors agree to fix and suppress the wages and other conditions of their workers the [Australian Competition and Consumer Commission], unlike its international counterparts, may not be able to take enforcement action,” it read.

In addition, the paper reportedly queried whether to remove the exemption so the “competition watchdog has power to address agreements between competitors that seek to suppress wages, but not agreements that seek to increase wages”.

It noted that evidence of the impact of no-poach and wage-fixing agreements on wages is “scarce … due to the secrecy of these arrangements”.

In his speech, however, Mr Leigh said that research from the e61 Institute had found that “job switching and the pay increases that come with it are worth $5,700 a year for typical workers”.

“It is worth even more for younger job switchers who can earn on average $7,500 more a year than job stayers,” he said.

Source: The Guardian

(Quotes via original reporting)

Australia’s Labor Party has accused franchise businesses of cartel-like behaviour for agreements not to poach each other’s employees, stating that fast-food workers could earn more if permitted to change jobs more easily, The Guardian reports.

Andrew Leigh - assistant minister for competition - gave a speech last week arguing that reforms aimed at preventing practices that stop workers from changing jobs could help workers win bigger pay rises.

The government will reportedly launch an issues paper about regulating the non-compete clauses restricting employees from working for employers in the same industry and location for a set period.

Mr Leigh said that in the US, UK and European Union “agreements between competitors” such as not to poach workers or suppress their wages are “cartel behaviour, and illegal”, raising questions about whether they should be outlawed in Australia.

Non-compete clauses and no-poach agreements could prevent workers from gaining pay rises of $5,700 or more, ordinarily available when employees switch jobs.

According to Mr Leigh, non-compete clauses affect a diverse range of employees: from breakdancing instructors to disability support workers and boilermakers.

He explained that non-compete clauses are intended to protect confidential information yet they are “the bluntest tool in the shed” for that job. International evidence suggests they are “harming job mobility, innovation and wages growth”, the assistant minister said.

Mr Leigh reportedly said that non-compete clauses have become “commonplace”. New Australian Bureau of Statistics data found one in five Australian businesses use them for their employees.

Their use “was not limited to upper‑level managers or executives but included all workers of varying incomes”, he said.

“Businesses with more than 1,000 employees were twice as likely (40%) to have employees with non‑compete clauses than those with fewer than 20 employees.

“Big, incumbent businesses can use non-compete clauses and other tools to maintain their market power and prevent their competitors from growing or new startups emerging.”

Mr Leigh said the clauses can have a “chilling” effect, “stopping workers from seeking out a better-paying job or from starting a new business”.

He also referenced no-poach agreements, saying they “are often made in secret and verbally, so workers don’t know they are impacting on their wages and mobility”.

“In a no-poach scenario, two or more businesses agree to not solicit or hire each other’s current or former workers.”

Mr Leigh said such agreements are common where employers compete for the same talent, such as in the US tech sector or other contexts including franchises in Australia.

“Major franchises such as McDonald’s, Bakers Delight and Domino’s have standard clauses that prevent franchisees from hiring workers in other stores.

“Exemptions for certain anti-competitive agreements may mean these no-poach agreements don’t fall foul of competition laws,” he added

The issues paper reportedly stated that, while “cartels are prohibited” by competition law, there are exemptions, including agreements about “remuneration, conditions of employment, hours of work or working conditions of employees” and independent contractors.

“Consequently, even if two competitors agree to fix and suppress the wages and other conditions of their workers the [Australian Competition and Consumer Commission], unlike its international counterparts, may not be able to take enforcement action,” it read.

In addition, the paper reportedly queried whether to remove the exemption so the “competition watchdog has power to address agreements between competitors that seek to suppress wages, but not agreements that seek to increase wages”.

It noted that evidence of the impact of no-poach and wage-fixing agreements on wages is “scarce … due to the secrecy of these arrangements”.

In his speech, however, Mr Leigh said that research from the e61 Institute had found that “job switching and the pay increases that come with it are worth $5,700 a year for typical workers”.

“It is worth even more for younger job switchers who can earn on average $7,500 more a year than job stayers,” he said.

Source: The Guardian

(Quotes via original reporting)