Low paid workers are being restrained from changing jobs Parliament told

Monday, 11 December 2023

Unfair restraint of trade employment stories are detailed in documents sent to Parliament as unions and community law centres seek a fairer deal for workers.

Restraint of trade clauses in employment contracts claim to ban workers from accepting jobs from rival companies for periods of up to a year.

But instead of being used to prevent senior managers from taking companies’ secret information to rivals, they are being used to prevent lower-paid workers from seeking higher-paid work for which they are qualified.

Labour MP Helen White’s Employment Relations (Restraint of Trade) Amendment Bill continues through the Parliamentary process, under the new Government.

However, its future is uncertain as National showed little support for it while in opposition, and is in the process of dismantling some of the last government’s employment laws, claiming they limited “flexibility, choice and agility in workplaces”

Submissions on the bill have been published and indicate employers are including restraint of trade clauses in contracts for some low-paid workers like rest home care and retail workers.

Sometimes the job bans are larger covering distances of 50km, 100km, and in some cases, the entire of the North Island, and in one case, the entire country.

Unions and Community Law Centres o Aotearoa (CLCA) want tight controls over the use of restraint of trade clauses, and support White’s proposal to ban them for workers earning less than three times the minimum wage.

However, some groups linked to employers are opposed to the bill or want to modify the bill.

CLCA said some employers in Hawke’s Bay included a 50km geographical restraint so that people could not work in Napier, Hastings or Central Hawkes Bay.

“Truck companies have tried to apply a North Island wide restraint of trade clause, arguing that the runs may take the driver anywhere in the North Island and therefore the geographical restraint is reasonable.” CLCA said.

In one example of mismatched employment bargaining power, CLCA said a restraint of trade clause was included in an agreement of a young employee of a hardware store in a small town.

When he sought to leave to go to another job, the employer’s lawyer sent a letter to the employee, threatening to enforce the clause, which banned him taking work with a rival within a 100km radius, CLCA said.

It outlined another 100km restraint of trade clause that was for 12 months. The woman subject to it wanted to start her own business because she was burnt-out and only wanted to work part-time, which her employer would not allow, CLCA said.

The Dairy Workers Union Te Runanga Wai U, which represents nearly 8500 workers, said restraint of trade clauses were often unreasonable.

One banned dairy workers from joining a competitor anywhere either in New Zealand or overseas for a year after leaving their job.

CLCA said many restraint of trade clauses were legally unenforceable, but workers did not know that.

The Taxpayers’ Union conservative lobby group said in its submission that “parties should be free to form contractual agreements which they feel best fit their personal circumstances, needs and requirements”.

White’s bill amounted to government “overreach“, it said, however, it did acknowledge that they damaged labour market flexibility.

“Whilst it may be the case that the presence of a non-compete clause in a potential employment contract disincentives some individuals from choosing to work with specific employers, they are free to seek employment with other businesses or negotiate alternative terms with their potential employer,” it said.

At the bill’s first reading in July, White argued employers were using restraint of trade clauses to suppress wages.

White said they were also suppressing productivity growth, and Silicon Valley-style innovation, as they could hinder the freedom of employment of people with high-level digital skills.

But the Taxpayers’ Union said “the effective banning of non-compete clauses in many cases will have significant knock-on effects on New Zealand’s economy, artificially lowering salaries whilst reducing both domestic and foreign direct investment.

“The inability for businesses to properly protect their proprietary interests in New Zealand will have negative flow-on effects on investment, as investors will be incentivised to shift planned investment towards more favourable markets,” it said.

When the bill was first debated in Parliament, baristas were cited as one of the groups of lowly-paid workers who sometimes had restraint of trade clauses in their contracts.

The Restaurant Association agreed that lower paid workers should be free to take a job at a rival company, but it said the three times the minimum wage was too high a threshold.

It worried banning restraint of trade clauses would weaken businesses’ ability to protect themselves from having their trade secrets stolen.

“The minimum wage is currently $22.70, meaning the proposed ban on restraints of trade would apply to any employee earning less than $68.10 per hour, or on a gross full-time annual salary of less than approximately $141,000.00,” it said.

Business NZ opposed the bill saying people could challenge restraint of trade in court.

Retail NZ recommended setting the bar on restraint of trade at twice the median wage.

Rothbury Insurance said restraint of trade clauses played a “critical” role in protecting its business, however, it did not seek to prevent workers leaving from taking jobs as brokers elsewhere.

Instead, it only restrained departing employees from soliciting or servicing the same specific clients they looked after while at Rothbury.

But one private submitter, Phillip Coghini, said politicians should act so workers were not treated as indentured labourers, serfs or slaves, and have their mobility and freedom to engage and complete in the labour market reduced.“

“Capitalism requires labour mobility,” he said.

However,

Politicians who have left or resigned from their political office should be prevented from being a political lobbyist for five years, he said.