What Australia’s proposed non-compete reforms mean for employers and their employment contracts
Ahead of its re-election in May 2025, the Federal Government committed to banning non-compete clauses for low- and middle-income employees. More than 12 months later, the Government has released exposure draft legislation setting out how the proposed reforms may operate. This article considers the key changes and what they could mean for employers. As consultation remains ongoing and the Bill has not yet been introduced into Parliament, its terms may change before any legislation is ultimately passed.
The Federal Government’s exposure draft bill titled Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 (the Bill) would significantly change the restraints employers can use to protect their legitimate business interest. The proposals are far-reaching, extending beyond preventing employee non-competes to outlawing restrictions on soliciting co-workers .
The Bill has not yet been passed and its final terms may change. However, if the reforms proceed, employers may need to reconsider how their employment agreements protect confidential information, client relationships and other legitimate business interests.
Which employees would be protected from non-compete clauses?
Non-compete clauses generally prevent former employees from working for a competitor or establishing a competing business for a specified period after their employment ends.
Under the proposed reforms, non-compete clauses would generally be prohibited for national system employees whose annualised full-time equivalent earnings are equal to or below the Fair Work high-income threshold. The threshold is currently $190,100 for the 2026–27 financial year and is indexed annually.
Casual employees and pieceworkers would be protected regardless of their earnings.
Importantly, the test is not necessarily limited to an employee’s stated salary. Employers may need to determine the employee’s annualised full-time equivalent earnings using the Fair Work Act definition of ‘earnings’. This may be particularly relevant for part-time employees and employees receiving bonuses, allowances or non-monetary benefits.
For employees earning above the threshold, a non-compete clause would not automatically be enforceable. It would still need to satisfy the proposed statutory requirements, including being necessary to protect a recognised legitimate interest and being reasonable.
Co-worker non-solicitation clauses would also be prohibited
Many employment agreements prevent departing employees from encouraging colleagues to leave with them.
The proposed reforms would prohibit these co-worker non-solicitation clauses for all national system employees, regardless of their earnings.
This is a significant development for employers who have traditionally relied on these clauses to reduce the risk of a senior employee leaving and taking part of the team with them.
Under the proposed approach, maintaining a stable workforce would no longer, by itself, be a legitimate business interest capable of supporting a post-employment restraint.
Employers may instead need to focus on retention strategies that operate during employment, such as appropriate remuneration structures, genuine incentive arrangements, career development opportunities and reasonable notice or gardening-leave provisions.
What Could Employers still protect?
The proposed reforms would not prevent employers from protecting every legitimate business interest.
Carefully drafted provisions dealing with confidential information and client relationships may remain available. However, any post-employment restraint would need to be necessary and reasonable. The recognised interests would principally concern protecting against:
- the use or disclosure of confidential information obtained through employment; and
- the use or disclosure of customer, client or professional relationships gained through employment.
That means greater emphasis on carefully targeted confidentiality and client-protection provisions. However, those provisions are not an automatic workaround: a confidentiality clause drafted so broadly that it effectively prevents an employee from working elsewhere could itself be captured as a non-compete.
Employers should also be cautious about relying on generic restraints used across the entire workforce. A clause that may be appropriate for a senior executive with access to strategic information may be unnecessary or unreasonable for another employee with limited access to clients or commercially sensitive material.
Effective drafting will require employers to identify the particular interests at risk and match the contractual protection to the employee’s actual role.
The End of Cascading Restrains
Cascading clauses are common in employment agreements and provide alternative restraint periods or geographical areas which a Court may examine to increase the likelihood that at least one restriction will be enforceable. Under the proposed reforms, a restraint drafted using cascading provisions would be unenforceable as a whole.
Employers would therefore need to identify an appropriate restraint period and area when preparing the agreement, rather than relying on a court to select an enforceable alternative later. Tailored drafting would become particularly important for employees whose restraints remain permissible.
Existing Contracts and Timing
The explanatory matials indicate that existing employment restraints would generally remain under the current rules unless the employment arrangement is varied after commencement, even where the variation does not concern the restraint itself. An agreed change to salary or duties could therefore affect an existing restraint without changing its wording.
A restraint that was suitable when an employee commenced may also become outdated as their role, client contact and access to confidential information change.
Reviewing employment agreements only after an employee resigns may be too late.
Significant Penalties
The proposed Fair Work penalties are significant. At current penalty-unit values, ordinary contraventions could attract maximum penalties of $21,840 for individuals and $109,200 for companies, with maximum penalties ten times higher for serious contraventions.
There is no blanket six-month grace period. A delay is proposed for penalties concerning the inclusion of prohibited terms, but not for the separate prohibition on seeking or threatening to enforce prohibited non-competes in employment arrangements entered into from commencement.
Commercial Agreements Between Business Are Also Affected
Separate amendments to the Competition and Consumer Act 2010 (Cth) would bring certain no-poach and wage-fixing arrangements within the cartel regime, exposing businesses and individuals to significant civil and criminal liability. These can include agreements between businesses not to recruit each other’s employees or to control wages and employment conditions.
Targeted exemptions are proposed for arrangements including certain joint ventures, secondments and labour hire. However, each exemption has specific requirements; businesses should not assume their arrangements qualify without first reviewing the exemptions and obtaining legal advice.
The proposed cartel provisions could also apply where businesses continue to give effect to an existing no-poach or wage-fixing arrangement after commencement.
What should employers do now?
The Bill remains in exposure draft form, so employers should avoid making rushed changes before its final form is known.
However, this is an appropriate time to identify where the business presently relies on post-employment restraints and whether those restraints genuinely protect its commercial risks.
A practical review should include:
- Auditing employment documents – identify non-compete, client non-solicitation, co-worker non-solicitation and cascading restraint clauses across employment agreements, deeds and workplace policies.
- Identifying the business interest being protected – consider what confidential information, client relationships or professional connections each relevant employee actually has access to.
- Reviewing confidentiality and intellectual property provisions – ensure these clauses clearly identify and protect the business’s information and intellectual property without being so broad that they effectively operate as non-competes.
- Reviewing upcoming employment variations – before changing an employee’s salary, duties or other conditions, consider whether the variation could bring an existing restraint within the proposed regime.
- Reconsidering workforce-retention strategies – employers who currently rely on co-worker non-solicitation clauses should consider lawful alternatives, including genuine incentives, career development, appropriate notice periods and gardening leave.
- Checking commercial agreements – review labour-hire, recruitment, franchise, services, joint-venture and similar agreements for provisions that may restrict employee recruitment or influence wages and employment conditions.
Preparation is better than enforcement
The proposed reforms would not remove every means of protecting a business. They would, however, require employers to be far more deliberate about what they are protecting and how their employment documents achieve that protection.
Generic restraints, outdated contracts and cascading clauses may no longer provide the safety net employers expect.
Businesses should use the period before the reforms are finalised to understand their current contractual position and prepare for any necessary changes. A considered review now may reduce the risk of discovering—only after a key employee leaves—that an important protection is ineffective or prohibited.
Our employment law team can assist employers to review existing employment agreements, workplace policies and relevant commercial arrangements, identify clauses that may be affected by the proposed reforms and prepare updated documents once the legislation is finalised.
Contact Enterprise Legal on (07) 4646 2621 for advice on employment documentation and restraint disputes.
