Does your business rely on non-compete clauses to protect client relationships, confidential information, or market advantage? Australian employers need to begin reviewing these contractual arrangements now.
The Australian Government has announced reforms to ban non-compete clauses for the vast majority of Australian workers, with the changes intended to commence from 1 January 2027 (subject to legislation passing Parliament). Expected to cover roughly 9 in 10 workers, this reform fundamentally changes how employers safeguard legitimate business interests when staff move on.
Note for employers: The proposed reform is announced government policy and is undergoing final legislative design; it is not yet law.
What is changing?
A non-compete clause restricts an employee from joining a competitor or starting a competing business for a set period after leaving.
Treasury research indicates that over 3 million Australian workers (~20% of the workforce) are bound by non-competes—including roles in childcare, retail, and administration where severe competitive risk is rare.
- The High-Income Threshold Rule: From 2027, non-compete clauses will be prohibited for employees earning below the Fair Work Act high-income threshold (indexed annually on 1 July; $183,100 for 2025–26 and $190,100 for 2026–27).
- Broad Impact: This threshold means approximately 90% of Australian workers will no longer be subject to non-compete restraints.
- Sale of Business Exemptions: Restraints tied to the sale of a business (protecting purchased goodwill) are explicitly excluded from the ban and will remain available.
What can employers use instead?
Removing non-compete clauses does not leave your business entirely unprotected. Employers should ensure their employment contracts rely on other enforceable legal mechanisms:
- Robust Confidentiality Obligations: Clearly specify what constitutes trade secrets, pricing models, and proprietary information that remains protected post-employment.
- Intellectual Property (IP) Provisions: Ensure contractual language clearly assigns ownership of all work product, tools, and materials created during employment.
- Targeted Non-Solicitation Clauses: Restraints preventing departing staff from soliciting clients, customers, or colleagues remain a vital tool (though the Government continues to consult on non-solicit parameters).
5-Step Action Plan for Employers
- Audit Current Contracts: Map out which positions currently contain non-competes, non-solicits, or IP clauses, and group them by total remuneration against the high-income threshold.
- Define Legitimate Business Interests: Identify the specific risk for each role (e.g., client list access vs. internal know-how) to tailor contractual protections appropriately.
- Tighten IT & Information Security: Support contracts with practical measures—audit access permissions, enforce strict data controls, and formalize exit offboarding protocols.
- Review Executive Remuneration Structuring: For key positions where post-employment competition poses genuine risk, evaluate whether total remuneration sits above the high-income threshold.
- Avoid Premature Contract Changes: Do not delete existing clauses immediately. Wait for the final legislation to confirm transitional rules for existing contracts and penalties for non-compliance.
Need help reviewing your employment contracts before the proposed non-compete reforms commence?
NB Employment Law can help employers assess employment contracts, restraints, confidentiality obligations and post-employment protections to ensure their workplace arrangements are prepared for Australia’s changing employment law landscape.
Talk to NB Employment Law about preparing your business for the upcoming non-compete reforms.