Government targets non-compete clauses in major workplace shake-up

The Albanese Government has released draft legislation that would prohibit employers from imposing non-compete clauses on employees earning below the Fair Work Act high-income threshold, currently $190,100 a year. The proposed reforms marks a significant shift in the regulation of post-employment restraints, with the government arguing that limiting the use of non-compete clauses would improve worker mobility, wages, competition and productivity.

Non-compete clauses are contractual provisions that restrict employees from competing with their former employer after their employment ends, typically within a defined industry, geographic area or period. Employers commonly use the clauses to protect business interests, including commercially sensitive information, customer relationships and intellectual property.

Research by the e61 Institute found that at least one in five workers in Australia is bound by a non-compete clause. Th practice extends beyond senior executives and highly paid professional services roles to lower-paid occupations, including childcare workers, yoga instructors, clerical workers and labourers.

The proposal has attracted criticism from employer groups.

“The changes introduced banning non-compete clauses for many workers are unnecessary and will result in predictable problematic consequences for many in industry,” said Innes Willox, CEO of Australian Industry Group. “The kinds of non-compete clauses targeted are already unenforceable under the common law unless they are reasonable and protect an employer’s legitimate interests. However, the law also recognises that businesses may have legitimate interests that warrant protection and that such protection can be reasonable in many cases. Overriding this longstanding legal position is yet another change that will be celebrated by unions but viewed as a further unwarranted blow to employers.

Around half of Australian workers are subject to some form of post-employment restraint, including non-compete, confidentiality, non-solicitation and non-poaching provisions. e61’s research also indicates that non-compete clauses have increasingly become standard terms in employment contracts.

The government’s proposed reforms are currently at the draft legislation stage and have not yet become law. If enacted, however, they would substantially restrict employers’ ability to rely on non-compete restraints against employees earning below the high-income threshold.

“There are many employees earning below $191,100 who are engaged in roles involving access to commercially sensitive or otherwise confidential information. Just think about employees working in sales roles, preparing commercial tenders or privy to confidential production processes or business plans,” explained Willox. “While it is welcome that the Government has ruled out prohibiting clauses that prevent employees disclosing confidential information, this doesn’t currently go far enough. The courts have repeatedly recognised that clauses preventing employees from disclosing confidential information are not sufficient to provide practical protection for an employer when their former staff member moves to a competitor as they are notoriously difficult to enforce.”

The government has indicated that consultation will also extend to broader restrictions on other forms of post-employment restraint and anti-competitive arrangements. These include co-worker non-solicitation clauses, no-poach and wage-fixing arrangements, as well as cascading restraint of trade clauses, commonly known as ‘waterfall’ clauses.

For employers, the proposed restrictions may increase the importance of alternative contractual mechanisms for protecting legitimate business interests. Rather than relying on broad non-compete restraints, employers could seek advice on whether those interests can be adequately protected through other measures, including longer notice periods.

Well-drafted gardening leave provisions may provide another mechanism for managing the transition of employees with access to sensitive information or critical business relationships. Robust confidentiality and intellectual property provisions can likewise provide important protection where post-employment restraints are unavailable or significantly limited.

The proposed changes are intended to commence in 2027. Public submissions on the exposure draft are open until 2 October 2026.

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