Labor has accused franchise businesses of cartel-like behaviour for agreements not to poach each other’s employees, arguing fast-food workers could earn more if allowed to change jobs more easily.
The assistant minister for competition, Andrew Leigh, will give a major speech on Thursday arguing reforms aimed at preventing practices that stop workers changing jobs could help workers win bigger pay rises.
The government is launching an issues paper about regulating non-compete clauses, which restrict employees from working for employers in the same industry and location for a period of time.
Leigh says that in the US, UK and European Union “agreements between competitors” such as not to poach workers or to 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 winning pay rises of $5,700 or more typically available when employees switch jobs.
In an advance copy of his speech to the McKell Institute, Leigh says that non-compete clauses are now affecting a diverse range of employees: from breakdancing instructors to disability support workers and boilermakers.
Leigh explains that non-compete clauses are intended to protect confidential information but are “the bluntest tool in the shed” for that job. International evidence suggests they are “harming job mobility, innovation and wages growth”, he says.
Leigh says that non-compete clauses have become “commonplace”, with new Australian Bureau of Statistics data finding one in five Australian businesses use them for their employees.
Use “was not limited to upper‑level managers or executives but included all workers of varying incomes”, he says.
“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.”
Leigh argues the clauses can have a “chilling” effect, “stopping workers from seeking out a better-paying job or from starting a new business”.
Leigh also takes aim at no-poach agreements, which he says “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.”
Leigh says these agreements are common where employers compete for the same talent, such as in the US tech sector, or in 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.”
The issues paper noted 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.”
The issues paper 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”.
But in his speech, Leigh says 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.”
