Major Reform Ahead: What the Proposed Ban on Non-Compete Clauses Means for Australian Businesses

The Australian Government has announced in its 2025-2026 Federal Budget its intention to ban non-compete clauses for employees earning less than $175,000 per annum. The proposed ban is expected to take effect from 2027.

In addition, the Government is looking to prohibit wage-fixing agreements and no-poach agreements, which have been identified as practices that stifle labour mobility and wage growth.

If implemented, these reforms will represent one of the most significant shifts in Australian employment law in recent years. Businesses across a wide range of industries should stay informed and begin preparing now to safeguard their commercial interests.

What are these clauses?

Non-compete clauses are contractual terms that restrict an employee from working for a competitor or starting a competing business, typically for a specified period and within a particular geographic area after their employment ends.

Non-poach provisions prevent employers from soliciting or hiring employees, contractors, or clients of another party, effectively restricting movement and competition within an industry.

Wage-fixing clauses involve agreements between businesses to set or cap wages or employee benefits, rather than allowing market forces to determine remuneration. These arrangements are generally illegal as they undermine fair competition.

What are the proposed reforms?

Although the detailed legislative framework is yet to be released, the Federal Government has announced its intention to:

1. ban non-compete clauses for employees earning less than $175,000 per annum (excluding superannuation and commissions/incentives).
2. reform or prohibit no-poach and wage-fixing provisions and agreements.

There is also the possibility that other restrictive covenants, such as non-solicitation clauses or other similar arrangements, will be reviewed or phased out as part of the Government’s broader reform agenda.

These changes are expected to take effect from 2027, following consultation and the passage of legislation.

Alternative Protections for Employers

Although these reforms may limit traditional contractual restraints available to employers, there remain several lawful and effective measures businesses can take to protect their interests:

1. Confidentiality Clauses

   Ensure employment contracts contain robust and comprehensive confidentiality clauses preventing employees from disclosing or using sensitive business information, such as trade secrets, proprietary processes, and customer lists after they leave employment. Well-drafted clauses help preserve a business’s competitive advantage.

2. Intellectual Property (IP) Clauses

   Clear intellectual property ownership provisions should confirm that all IP created during the course of employment is owned by the business, not the employee. This protects the business’s rights over valuable ideas, inventions, and materials, and helps prevent disputes over ownership in the future.

3. “Gardening Leave” Provisions

   Consider including “gardening leave” clauses that allow employers to require departing employees to serve out their notice period away from the workplace, while remaining on payroll. This limits immediate access to confidential information and mitigates the risk of employees joining competitors during the transition period.

4. Internal Company Policies and Safeguards

   Contractual measures should be complemented by strong internal policies and procedures, such as access controls, data security measures, and conflict-of-interest protocols. Embedding these systems into daily operations helps minimise the risk of confidential information being accessed or misused by departing employees.

Potential Impact

If you are a current business owner or are considering purchasing a business, it is important to understand how these proposed reforms may affect existing employment arrangements.

While the legislation has not yet been introduced, proactive employers should begin reviewing their contracts and policies now to ensure continuity of protection and compliance.

Early action will help ensure your business remains resilient, compliant, and well-positioned in Australia’s evolving employment and competition law landscape.

If you require our assistance to review existing contracts to identify non-compete or non-poach clauses that may soon become unenforceable or strengthen confidentiality and IP clauses to maintain protection of key business information, please do not hesitate to reach out to our team.