The Australian Government has announced its intention to ban the use of non‑compete clauses for employees earning below the high‑income threshold.
If implemented, this reform would represent a significant shift in the regulation of post‑employment restraints. In particular, the proposed ban will limit the ability of businesses to rely on non-compete clauses to protect their legitimate business interests, and may also affect the perceived value and security of investments made in employee training and development.
The background
Non-compete clauses are commonly utilised by employers to prohibit or restrict employees from obtaining employment with a competing business or establishing their own competitor business within the same industry, in a specified geographic area and/or for a period of time following the conclusion of employment.
These clauses are intended to provide contractual protection for legitimate business interests by delaying the risk of intellectual property, confidential information and client relationships from being used by employees to the advantage of a competitor business.
Such protection arguably incentivises employers to invest in the training and development of their employees, with the confidence that the benefits of that investment will be retained within the business.
Currently, courts consider that non-compete clauses are valid if they reasonably protect legitimate interests and are not against public policy - considering factors such as scope, duration and necessity, with unreasonable provisions being severed.
However, concerns have grown regarding the financial impact of non-compete clauses on employees. In particular, the Government considers that the utilisation of non-compete clauses, and the fear of legal action by employers, has limited the potential of affected employees to derive higher earnings. The Government expects that, once effective, the ban on non-compete clauses for certain employees will increase an average employee’s wage by up to 4% and result in a $5 billion increase in the economy’s gross domestic product.
The proposed changes
In March 2025, the Government announced its intention to ban the use of non-compete clauses for employees earning under the high-income threshold (currently $183,100).1 As part of those reforms, the Government also intends to close perceived loopholes that may currently allow businesses to:
- fix wages - by putting in place anti‑competitive arrangements with others that cap workers’ pay and conditions without their knowledge and agreement, and
- make use of ‘no‑poach’ agreements - to block employees from being hired by their competitors.
Government consultation regarding the proposal concluded in September 2025, where feedback was sought from the public and relevant stakeholders. This included consideration as to whether the ban should be extended to high-income earners and independent contractors, and whether any exceptions should apply.
Although the precise scope of the proposed reform and any penalties that may be imposed for contravention of the ban is not yet known, those details should become clear once a draft Bill has been presented to Parliament with a view to implementing the change.
In the meantime, if passed, the ban on non-compete clauses is expected to be implemented through amendment to the Fair Work Act 2009 (Cth) and come into effect sometime in 2027.
Implications for employers
The proposed reform will likely impact an estimated one in five Australian businesses that currently rely on non-compete clauses as a form of contractual protection of their legitimate business interests.
For employers, the removal of non‑compete clauses for a segment of the workforce may result in:
- a heightened risk of intellectual property, confidential information and client relationships being used by former employees to the advantage of a competing business
- increased difficulty in retaining employees, as greater job mobility may strengthen employees’ bargaining power in wage negotiations and make competing offers more attractive, and
- reduced incentive to invest in the training and development of employees due to the increased risk that skills, knowledge and experience acquired during employment may be transferred to competitors.
These risks highlight a shift in how employers may need to approach the protection of such interests. Ahead of the proposed ban coming into effect, it will be important for employers to consider other, lawful mechanisms for protecting their legitimate business interests.
This may include reviewing the use and scope of non‑solicitation and non‑disclosure clauses, which may continue to provide meaningful protection, as well as considering the role of copyright and the design, adequacy and enforcement of internal information management and data security systems.
