The federal government has announced that non-compete clauses for employees earning below the high-income threshold will be banned from 2027.    

What you need to know 

Limited information about the proposed ban has been provided, and legislation giving effect to the ban is not yet available. However, we do know the following:  

• • The ban will likely operate prospectively (meaning that it will probably not apply to existing contracts, although full details about the transitional arrangements are not yet known)  

• • The ban will likely only apply to employees earning below the high-income threshold ($183,100 as at 1 July 2025)  

• • There will be further consultation about non-solicitation clauses for clients and co-workers, and further consultation about high-income employees.  

 

What is a restraint of trade clause?  

A restraint of trade clause is a term of an employment contract that seeks to do any of the following:  

• • Prevent an employee from working for a competitor or similar business following termination (non-compete clause)  

• • Prevent the employee from enticing clients away from the employer 

• • Prevent the employee from poaching or taking other employees away from the employer (non-solicitation clauses)  

 

Are restraint of trade clauses enforceable?  

There is a presumption that restraint of trade clauses are not enforceable as they are contrary to public policy (i.e., the freedom to trade). However, an employer will be able to enforce a restraint clause if they can show the restraint is reasonably necessary to protect the legitimate business interests of their business.  

 

What should employees do?  

This is good news for many employees.  

Employees should be cautious about signing any new restraints between now and when the proposed legislation comes into effect.  

 

What should I do if I am already bound by a restraint clause? 

If you are already bound by a restraint clause and you are considering leaving your employment, it would be prudent to seek professional advice because the enforceability of a restraint will turn on the facts and circumstances of each case. Often, a restraint is subject to permission from the employer, or an agreement can be reached to waive the restraint clause. 

 

What should employers do?  

Employers should watch this space to see how the law develops. Employers should also review their operations and their current employment contracts to see whether existing restraints are necessary. 

Reference: Chalmers, J, ‘Cracking down on non-compete clause to boost wages and productivity’, 25 March 2025 <https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/cracking-down-non-compete-clauses-boost-wages-and> 

This article contains information only and is not intended to be taken as legal advice. Please contact Henry Bournes for specific advice. Liability limited by a scheme approved under Professional Standards Legislation.