Legal Update

Proposed Ban on Non-Compete Clauses in Employment Contracts

Authors: Greg Robertson, Stella Magoulias and Ekaterina Plegas

In the 2025/26 Federal Budget, the Albanese Government announced their plan to ban non-compete clauses for workers earning less than the high-income threshold (currently $175,000 per annum). The proposal was a response to last year’s Competition Review, as well as union campaigns aimed at improving worker mobility and wage growth. The Albanese Government will engage in further consultation before introducing a bill to Parliament that will amend the Fair Work Act 2009 (Cth), and if passed the ban is expected to take effect in 2027, operating prospectively.

Non-compete clauses

Non-compete clauses in employment contracts aim to prevent or restrict an employee from working for a competitor. Except in NSW, where statute has modified the approach, non-compete clauses are governed by the common law restraint of trade doctrine. Under this doctrine, while non-compete clauses are prima facie void as they are contrary to public policy, they can be enforceable if they are reasonable and necessary to protect legitimate business interests of an employer. The enforceability of these clauses depends on various factors such as duration, geographical scope, scope of activities and the legitimacy of the employer’s interests, but very often an employer will be able to use such clauses to restrict the activities of employees seeking to move to another employer.

In NSW, the Restraints of Trade Act 1976 (NSW) alters the common law position, making restraints enforceable to the extent they are not against public policy.

Proposed ban on non-compete clauses

The proposal to ban non-compete clauses follows the findings of last year’s Issues Paper by the Competition Review Taskforce. The paper identified that 46.9% of Australian businesses use some form of restraint clause, and made the claim that non-compete clauses hinder labour mobility and wage growth. Currently, more than three million Australian workers are covered by these non-compete clauses. The paper indicated that these clauses are particularly harmful to lower-paid workers with specialised skills, such as hairdressers, childcare workers, dental assistants and construction workers.

The ban will cover all workers earning below the high-income threshold, which is updated annually, effective on 1 July each year. Currently the high-income threshold is set at $175,000 per annum. This figure is based on a worker’s base salary, and excludes superannuation, and any commissions and incentives. As a result, it is possible that the ban may extend to white-collar workers who have a base salary under the threshold, but whose total remuneration greatly exceeds the threshold if they receive large bonuses.

Beyond the ban on non-compete clauses, the Federal Government is seeking to close the loopholes in competition law that currently allow businesses to:

• Fix wages by making anti-competitive arrangements that cap workers’ pay and conditions, without the knowledge and agreement of affected workers; and
• Use ‘no-poach’ agreements to block staff from being hired by competitors. 

Watch this space

The Federal Government plans to engage in further consultation before tabling legislation. Specifically, the government will consider whether the ban should apply beyond employees, potential exemptions, penalties for non-compliance, and transitional arrangements. Additionally, the government will consider whether to ban non-solicitation clauses, and how non-compete clauses would apply to workers earning above the high-income threshold. What is not clear at this stage is how any such ban might interact with other related clauses often found in employment contracts, for example, restrictions on moving to positions where it is possible to misuse confidential information belonging to an employer. Nor is it clear how the reference to closing loopholes around “no poach” agreements would operate so as to protect proper business relationships with other employees of a business and with clients and customers of a business.

Key Action Points for Companies and In-House Counsel

At this stage, no action is required to be taken by employers. However, if the ban is implemented, employers will need to:

• redraft templates of employment contracts to issue to future employees earning under the high-income threshold so that they omit any non-compete clauses.
• develop alternative strategies to mitigate the risk of key employees competing against them.
• develop alternative strategies for protecting confidential information and other legitimate business interests.

Depending on the form of the legislation, currently unknown, it may be necessary to review existing contracts, although the announcement of the changes indicated that they would be prospective and not retrospective.

If you require legal advice or assistance in relation to these new changes once they are implemented, please contact our Harmers Workplace Lawyers team on + 61 2 9267 4322.

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