Australia’s Proposed Ban on Non-Compete Clauses: What You Need to Know

At Dexterity Law, we regularly advise both employers and employees on the use and enforceability of non-compete clauses. Contractual restraints are a mainstay in many industries—especially where the knowledge, relationships, or IP held by employees can walk out the door when they do.

However, significant changes are on the horizon.

In the budget for 2025/2026, the Australian Federal Government announced a proposal to ban non-compete clauses for employees earning less than $175,000 per year, with legislation expected to come into effect from 2027. This proposal forms part of the government’s broader push to improve worker mobility and wage growth, echoing moves already taken in jurisdictions like California and the UK.

Why the Change?

The government argues that non-compete clauses often suppress competition, inhibit employee bargaining power, and stifle innovation—especially in the tech and services sectors. Research by the Grattan Institute has also suggested that these clauses may reduce job mobility, particularly among mid-career professionals. [Grattan Institute, “Wages and Workforce Mobility”, 2023].

The Productivity Commission, in its 2023 report, similarly criticised widespread and vague use of restraint clauses in employment contracts and recommended legislative reform to ensure these clauses are only used where strictly necessary. [Productivity Commission 5-Year Productivity Inquiry Report, 2023].

As always, a macro-view of these issues, glosses over the nuances of the circumstances that small business owners find themselves in when seeking to protect the goodwill in their enterprises.

What Does This Mean for Employers?

Business owners—particularly in industries with a low cost of entry (making it easier for employees to start competing outfits)—will need to significantly rethink how they protect their commercial interests when key staff depart. If the legislation passes in its current form, non-compete clauses will be unenforceable for a large cohort of employees, with some estimates suggesting this could affect up to 60% of the Australian workforce.

In light of this, employers should begin reviewing and restructuring their processes for managing confidentiality information and their employment agreements before the law takes effect.

This includes considering:

1. Longer Notice Periods and Gardening Leave
   Employers may seek to implement or extend notice periods and include gardening leave clauses, which allow them to pay employees not to work during the notice period. This helps reduce the risk of immediate competition while still respecting legal constraints. We appreciate the cost may be an insurmountable obstacle for many small business owners.

2. Enhanced Confidentiality & Information Access Protocols
   Non-compete clauses may fall away, but confidentiality obligations remain enforceable. Businesses should review what sensitive information is shared, to whom, and how it's accessed. Tools like data access logs, secure document storage, and internal classification systems can help reduce exposure.

3. Retention Strategies and Incentives
   To retain key talent, employers may need to offer better retention packages, such as cash bonuses, deferred compensation, equity schemes, or enhanced perks like extra leave or flexible work arrangements. With non-competes off the table, employee loyalty will be driven more by culture and benefits than by contract terms.

4. Intellectual Property (IP) Ownership
   Employers should also ensure their contracts clearly identify that any IP created by employees during their tenure is owned by the business. This is especially important in creative and technical roles.

What About Employees?

For employees, particularly those who plan to start a competing business or move to a competitor, this change could provide greater freedom—but it comes with responsibilities.

Non-compete clauses may be disappearing, but employees remain bound by confidentiality and non-solicitation obligations (e.g., not poaching former clients or colleagues). These are still enforceable and can lead to litigation if breached.

We can expect increased interest in prosecuting breaches of confidentiality in a post non-compete world.

If you're an employee planning to branch out:

• Document how you developed your new business—demonstrate that your new venture is based on your own know-how, not your former employer’s confidential information.

• Be cautious about timing and preparation—starting a competing business while still employed can still constitute a breach of your fiduciary obligations to your employer.

And if your salary is currently sitting in the $150,000–$170,000 range, there may soon be real incentive for your employer to bump your remuneration over the $175,000 threshold in order to retain a non-compete clause—so the coming years may place you in a good position when salary review times roll around.

Moving forward

If the proposed legislation is enacted, it will mark a major shift in Australian employment law, one that will likely reshape how businesses manage risk and how employees navigate career transitions.

Whether you’re an employer seeking to protect your business or an employee wondering how these changes affect your career path, now is the time to get advice.

If you have questions about how to adapt your contracts or plan your next career move, get in touch with our team—we're here to help you navigate the transition.

This article was written by Pippin Barry (BA, JD; Unimelb) an Australian Legal Practitioner.