Pending reforms to non-compete clauses: what employers should be doing now

The Albanese government has announced plans to significantly reform the use of non-compete clauses and other worker restraints in Australia, as part of its broader competition agenda. While the proposed legislation has not yet been released, the changes are likely to have a significant impact on how employers protect confidential information, customer relationships and workforce stability.

For many organisations, non-compete clauses have long formed part of a broader legal framework designed to protect legitimate business interests. However, as a result of the proposed reforms employers may increasingly need to rely on alternative strategies to manage risk when employees leave and join competitors.

While the reforms are not expected to commence until 2027, organisations should begin preparing now. Below we consider some of the steps employers should be taking in anticipation of the proposed changes.

What has the government announced?

The federal Labor government argues that non-compete clauses have become increasingly common across a broad range of occupations and income levels, serving to discourage employees from changing jobs, contributing to lower worker mobility and reduced competition within labour markets.

In response to the findings of its Competition Review, the government has announced that it intends to prohibit non-compete clauses for low-to-medium income earners, which will likely be tied to those who earn under the high-income threshold, which is set at $190,100 for FY27 (and indexed annually).

The proposed prohibition is intended to take effect from 2027 following consultation and legislation being passed by Parliament. Importantly, the proposal will not extend to non-compete clauses associated with the sale of a business.

The government has also announced its intention to prohibit:

• no-poach agreements between businesses that restrict the hiring of a worker; and

• wage-fixing arrangements between businesses that cap wages or employment conditions without workers' knowledge.

With the reforms intended to commence in 2027, it is likely that legislation will be introduced during the 2026 Spring Parliamentary sittings. While the legislation has not yet been released, the Government's consultation papers indicate that the proposed changes may extend beyond non-compete clauses and form part of a broader review of worker restraints. Of particular significance to employers is the possibility that other protections, including non-solicitation provisions, may also be affected.

What should employers be doing now?

While the reforms are not expected to commence until next year, employers should begin preparing now.

Organisations that currently rely on non-compete clauses should:

• review their employment contracts and identify the extent to which those restraints are used across their workforce;

• consider what alternative mechanisms are available to protect legitimate business interests if non-compete clauses become unavailable for a significant proportion of employees;

• give particular attention to confidentiality obligations, conflict of interest provisions, intellectual property protections, notice periods, contractual ability to suspend and gardening leave arrangements.

For many organisations these protections will become increasingly important in managing the risks associated with employee departures.

Employers should also ensure that contractual protections are supported by appropriate operational controls. Restrictive covenants are only one part of protecting confidential information, customer relationships and workforce stability. Reward and recognition of current staff, access controls, information security measures and succession planning remain equally important.

Looking ahead

The proposed reforms represent the most significant change to post-employment restraints in Australia in recent years. While the content of the legislation remains unknown, the government’s policy desires are clear, and there is nothing to suggest that the reforms once proposed will not pass through Parliament.

Employers should use the period before commencement to review existing arrangements and ensure that the protection of confidential information, intellectual property and customer relationships does not depend solely on non-compete clauses. Organisations that act now will be better placed to adapt as the reforms progress through Parliament and will have better protections in place in any event.

Key takeaways

• The Federal government intends to prohibit non-compete clauses for workers earning below the high-income threshold from 2027.

• No-poach and wage-fixing agreements are also proposed to be prohibited.

• Draft legislation has not yet been released and the ultimate scope of the reforms remains uncertain.

• The government's consultation papers suggest that reform may extend beyond traditional non-compete clauses and form part of a broader review of worker restraints.

• Employers should begin reviewing their employment contracts and workforce protection strategies now.

• Confidentiality obligations, intellectual property protections, conflict of interest provisions, notice periods, contractual ability to suspend, gardening leave arrangements and broader staff retention policies are likely to assume greater importance following the commencement of the reforms.

Authors: Gavin Stuart, Andrew Yahl & Zach Bentley

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.