Cracking Down on Non-Compete Clauses. What You Need to Know

The Australian Government has announced a significant legal reform in the 2025–26 Federal Budget: from 2027, non-compete clauses in employment contracts will be banned for workers earning below the high-income threshold, currently set at $175,000 under the Fair Work Act 2009 (Cth). This policy shift, framed as part of a broader initiative aimed at “cracking down on non-compete clauses”, seeks to increase labour mobility, improve wage growth, and stimulate competition across the Australian economy.

Non-compete clauses and other restraints have long been used by employers to prevent employees from working with competitors or starting competing businesses. Although their enforceability has always been subject to legal limitations, the statutory ban represents a decisive departure from the traditional reliance on common law to determine reasonableness in such contractual restraints.

How the Ban on Non-Compete Clauses Impacts Growth Companies

For entrepreneurs and small to mid-sized businesses this ban has material consequences. These businesses often depend heavily on a small number of strategic personnel. Without non-compete clauses in employment contracts, companies may face greater risks of key individuals leaving to join rivals or establish competing ventures, taking with them not only their skills but also insights into the company’s strategies, client base, and commercial positioning.

Importantly, restraint clauses have historically provided a layer of protection where formal intellectual property rights or registered trade secrets fall short. Their removal will require businesses to find alternative ways to secure their investments in talent and proprietary information.

Alternative Strategies to Mitigate the Risk of Restraint Clause Removal

In anticipation of the statutory reform, growth companies must reassess their current employment practices and legal safeguards. The following strategies could be considered:

1. Enhance Confidentiality Clauses

   Employers should ensure confidentiality obligations are comprehensive and specific. Unlike non-compete provisions, confidentiality clauses are not being banned and can continue to protect business-sensitive information, provided their scope is reasonable and clearly defined. But make no mistake: Unlike non-competes, where breach is self-evident (working for a competitor), confidentiality breaches require evidence of misuse, which is often covert. Employees are entitled to use their accumulated skills, know-how, and general industry knowledge, even if it was developed during their employment. Information already publicly available, or that becomes so post-employment, cannot be protected by a confidentiality clause.

2. Implement Enforceable Non-Solicitation Clauses

   While non-compete clauses will be statutorily banned for workers earning below the high-income threshold from 2027, non-solicitation clauses are not yet subject to the same statutory prohibition. However, the Government has explicitly stated that it will consult further on whether to extend the ban or introduce new limits on non-solicitation provisions, particularly those concerning clients and co-workers. Their continued enforceability may therefore be time-limited or subject to future legislative change.

3. Develop Retention Incentives

   Retaining talent will increasingly depend on cultural and financial incentives. Long-term incentive plans, career development pathways, and employee equity schemes can increase loyalty in the absence of legal restraints.

4. Conduct Role-Based Risk Assessments

   Businesses should identify roles that have access to sensitive commercial information and develop tailored strategies to safeguard this access once non-compete clauses are no longer enforceable (e.g. applying need-to-know principles using IT access controls so only those who need sensitive data can view it, offboarding procedures including deactivation of credentials, return of devices, exit interviews to reinforce confidentiality obligations, technical measures to log data access and flag anomalous downloads or transfers, particularly during resignation notice periods, etc.)

   
   

Non-Compete Clauses and Other Restraints: Legal Distinctions and Limitations

Understanding the distinction between non-compete clauses and confidentiality obligations is critical. Confidentiality clauses protect against the unauthorised use or disclosure of proprietary information and typically remain enforceable even after employment ends. However, their effectiveness is contingent on the employer’s ability to detect and prove a breach—often a complex and resource-intensive undertaking.

Non-compete clauses, in contrast, prevent former employees from working with a competitor regardless of whether any misuse of confidential information occurs. These restraints are preventive in nature, which is precisely why they have been a preferred option for businesses protecting competitive advantages.

The challenge for employers post-reform will be twofold: first, to draft confidentiality clauses that are enforceable and offer genuine protection; second, to operate without the broad shield that non-compete restraints once provided.

Looking Ahead: Preparing for a Post-Restraint Business Environment

The government’s commitment to cracking down on non-compete clauses underscores a broader policy agenda aimed at fostering a more dynamic and equitable labour market. While these changes may enhance mobility and wage growth across the workforce, they also impose new burdens on businesses—particularly those without extensive legal resources or sophisticated employment frameworks.

Entrepreneurs and growth-stage companies must act now. The transition period before 2027 provides an opportunity to audit existing agreements, re-negotiate key contractual terms, and implement policies that prioritise talent retention and information security.

In this new regulatory context, the enforceability of non-compete clauses will no longer be a question of reasonableness—it will be a matter of statutory prohibition. As such, businesses must shift from relying on post-employment restraints to fostering resilience through internal strategy, contractual clarity, and a deeper investment in employee relationships.

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