When I joined the John Fairfax superannuation scheme 50 years ago on Wednesday, I little knew my new boss was trying to handcuff me. Fortunately, they were “golden handcuffs”. But these days, bosses use other, more blatant ways to tie their workers to them and stop wages growing so fast.
The Fairfax scheme I joined decades ago must have been fairly common among big companies in the years after World War II, when shortages of skilled labour were almost continuous.
From memory, the company offered to contribute an extra 6 per cent of my pay to the scheme, provided I contributed 4 per cent. That 4 per cent stopped many people joining the scheme, but not me.
What I didn’t realise was that, if you left the scheme before reaching retirement age, you got your own contributions back, with 3.75 per cent interest, but forfeited the company’s contributions and the accrued earnings on them.
But here’s the trick: the company didn’t keep the forfeited contributions and earnings, but transferred them to the scheme’s general fund, to be shared between those loyal employees who did stay until retirement.
Get it? The longer you’d worked for the company, the more you had to lose by leaving. Plus, the more you had to gain by staying on until retirement. You were bound to the company by golden handcuffs.
(A side-benefit to the Fairfax family was that much of the huge sum in the general fund was held in Fairfax shares, thereby increasing the family’s protection against a hostile takeover.)
Relax. My handcuffs are long gone, removed by Paul Keating’s introduction of compulsory super for employees and related reform of existing company super schemes, in the early 1990s. Today, all employer contributions and earnings are immediately "vested" in the employee, meaning you take them with you when you leave the company.
Now, I should remind you that mainstream economists are great believers in "the mobility of labour". The freer workers are to move to another employer offering a better job, or to start their own business, the more efficient the economy is likely to be, and the faster productivity will improve.
So the last thing economists approve of is employers being able to discourage, delay or even prevent their staff from moving on. That is, able to prevent market forces from working the way they should.
But as assistant minister for competition Dr Andrew Leigh reminded us last week, there’s much research showing that employers around the world are increasingly using "non-compete clauses" in their employees’ contracts. To get the job, you have to agree not to leave and work for one of its competitors for a set period, or to yourself set up in competition.
Couldn’t happen in a decent place like Australia? Don’t be so sure. Just as it’s taken longer for our chief executives to start believing they’re entitled to pay themselves many multiples more than they pay any of the company’s other employees, so they’ve been slower to follow the Yanks and Brits in handcuffing those who work under them.
Even so, an online survey conducted by Dan Andrews (not that one) from the e61 Institute, and Bjorn Jarvis from the Australian Bureau of Statistics, found that as many as one in five Australian workers is subject to a non-compete clause.
Smaller percentages of employees must agree not to poach the company’s workers after they’ve left, or not to solicit the business of their former employer’s clients.
The survey found that, as well as applying to senior executives, non-compete clauses may apply to many workers who have close contact with the customers: childcare workers, yoga instructors and specialists in IVF.
It also found that competition clauses applied to 39 per cent of managers, 26 per cent of community and personal service workers, and to 14 per cent of clerical and admin workers.
Leigh says that shifting jobs is typically associated with a substantial jump in pay. Yes, that’s probably why few recruits resist when the new boss slips in some clause about what happens if you leave. Leave? I haven’t even arrived yet.
But Leigh says even many low-paid workers are constrained from shifting to a better job. Don’t forget that, these days, many government-subsidised services are provided by small, for-profit providers.
I hire you to work in my childcare or aged care (or yoga) business, but you prove good at it, and popular with the parents or the oldies’ children, so you leave and set up for yourself, taking some of my customers with you.
Leigh says that, even if some non-compete clauses wouldn’t stand up in court, they are rarely tested. (That’s another yawning gap between theory and practice. In theory, we’re all equal before the law. In practice, lawyers cost big bucks – and the boss has a lot more bucks to play with than you do.)
“In most cases,” Leigh says, “workers subject to a non-compete clause will either choose to suffer the period of enforced ‘gardening leave’ [the months or years that you’ve agreed not to join a competitor or become one] or will stay with their existing employer.”
But this is about more than employers treating you like you’re their slave. It’s also about wages. Especially where workers possess skills that aren’t easy to come by, competition between employers pushes wages up. If you can find a way to dampen that competition, you’ve kept a lid on wage costs.
“This means that workers miss out on potential wage gains,” Leigh says. “It also makes it harder for start-up firms to attract the talent they need to challenge incumbents. In turn, productivity suffers.”
The Bureau of Statistics has added a question about non-compete clauses to its regular survey of employee earnings and hours, which it will publish later this month.
The competition taskforce within Treasury, set up by the government last year, will be looking closely at this information to learn more about the effects of non-compete clauses on workers and businesses in Australia.
Have you noticed how, whenever the (Big) Business Council reads us another lecture on the need for major reform to get our productivity improving again, non-compete clauses never rate a mention?
