If your employment contracts rely on a non-compete clause to protect your business, draft legislation could remove much of that protection for most of your staff. Consultation has now closed, but the legislation isn’t law yet and it may change before it passes, so it’s worth understanding what’s proposed and what to do about it.
What is a non-compete clause?
A non-compete clause is a term in an employment contract that stops a departing employee from working for a competitor, or starting a competing business, for a set period after they leave. Employers use them to protect client relationships, confidential information and market position. Critics argue they go further than needed and hold back job mobility and wage growth, which is the case the Government is making for change.
What’s being proposed
The Federal Government has released draft legislation that would ban non-compete clauses for anyone earning below the Fair Work Act high income threshold, currently $190,100 for the 2026–27 year and indexed every 1 July. Government-cited research puts around one in five Australian workers under a non-compete today and estimates a ban could lift affected workers’ wages by up to four per cent, or about $2,500 a year for a typical worker.
The Government is also consulting on related restrictions: banning co-worker non-solicitation clauses, banning no-poach and wage-fixing arrangements between businesses, and banning cascading restraint of trade clauses, with exemptions to protect legitimate business interests. This is a bill, not an act. It could pass as drafted, be amended during consultation, or stall altogether. Submissions closed 2 October 2026 through the Treasury consultation hub.
Who would be affected
If the ban passes as drafted, the threshold will reach well beyond senior executives. Take a business with 20 staff: two partners or senior leaders earning above $190,100, and 18 staff below it across admin, technical and management roles. The non-compete in each of those 18 contracts would become unenforceable once the ban takes effect, no matter how carefully it was drafted.
What wouldn’t change
- Sale of business restraints are expressly excluded from the proposal. A restraint tied to the goodwill a buyer has paid for would remain available.
- Confidentiality and intellectual property clauses aren’t affected by the proposal, and would need to do more of the protective work going forward if it proceeds.
- Non-solicitation clauses, covering clients and staff, would remain available for now, though they’re flagged for further consultation. Use them but keep an eye on this.
- For genuinely key people, keeping total remuneration above the high-income threshold is a deliberate structuring option worth considering. It’s not a loophole to assume without checking how remuneration is defined for the threshold.
What to do now
Nothing changes for your existing contracts today, and current non-compete clauses remain enforceable as they are. But the direction of this reform is clear enough that it’s worth preparing, without treating the ban as a foregone conclusion.
- Audit your existing contracts to understand who has a non-compete and who’s likely to sit under the threshold, so you know your exposure if the ban proceeds.
- Think twice before drafting new contracts that lean heavily on a non-compete for sub-threshold roles. It’s a real risk of future unenforceability, even though nothing has changed yet.
- Strengthen your confidentiality, IP and non-solicitation clauses so they can carry more of the protective load, whether this reform goes ahead.
- Think about retention, not just restraint. For the people you genuinely can’t afford to lose, a considered remuneration and progression strategy protects more than a clause on paper ever did.
What if it doesn’t pass?
Draft legislation doesn’t always become law. If this proposal doesn’t proceed, or is significantly changed during consultation, existing non-compete clauses continue to operate as they do today and nothing about your current contracts needs to change. That’s why we aren’t suggesting you tear up existing clauses now. What’s worth doing regardless of the outcome is understanding where your business relies on non-competes, and making sure your confidentiality, IP and non-solicitation clauses are solid. That’s good practice either way.
Key dates
- 2 October 2026: submissions on the draft legislation closed.
- 1 July each year: the high-income threshold is indexed (currently $190,100).
- 2027: the Government’s proposed start date if the legislation passes in its current form. Nothing is confirmed yet.
Reviewing your employment contracts ahead of this reform? Talk to our Employment Law team.
This article is general information only and is not legal advice. The reform discussed is a bill, not yet law, and the detail may change before or if it’s finalised. Get advice on your specific contracts before acting.
