Proposed Changes to Non-Compete Clauses

Following similar reforms in the US and UK, the Labor Government’s 2025 federal budget included a proposed ban to most non-compete clauses in employee agreements. The Treasurer proclaimed that such clauses are “holding too many Australian workers back from going to better-paid opportunities or setting up small businesses”. The changes are expected to come into effect in 2027. It is my aim in this post to lay out the facts, and analyse what they may mean for your small business.

What is a Non-Compete Clause?

A non-compete clause is a condition in an employer’s agreement that prohibits an employee from working for or establishing a competing business both during and after their time working for the company. ABS data from 2024 revealed that around 46.9% of Australian businesses were using some form of a restraint clause.

These clauses are designed to protect businesses from unfair competition and safeguard their intellectual property. Under Australian common law and the restraint of trade doctrine, such clauses must be both reasonable and necessary to protect legitimate business interests, with the geographical scope, duration and scope of prohibited activities being assessed on a case-by-case basis.

What are the Proposed Changes?

The main proposed change is to ban non-compete clauses for workers earning less than $175 ,000 a year. This would apply to employees covered by the Fair Work Act 2009, including but not limited to hairdressers, childcare workers, and construction workers.

Potential exemptions to the law include secondment arrangements, labour hire firms, collective bargaining agreements, professional sports leagues as well as other existing competition law risk mitigation mechanisms. The application of these changes to independent contractors remains subject to clarification in the final legislation.

The proposed legislation includes provisions to criminalize wage-fixing (wherein two or more companies agree to ‘fix’ employees’ wages rather than allowing them to be determined by open market competition) and no-poach agreements (agreements between businesses to refrain from hiring each others’ employees). If passed, such “anti-competitive agreements” will attract civil and criminal penalties, including:

Civil:

• A civil penalty of up to $50 million imposed on the company, or
• 3 times the value of the benefit obtained, or
• 30% of the business’ turnover during the time of breach.

Criminal:

• Up to 10 years imprisonment, and/or
• A fine not exceeding 2000 penalty units (equivalent to $320,000 as of September 2025)

What are the Changes Intended To Do?

The main goal of these changes is to improve working conditions of casual and part-time workers by making it easier to switch jobs. Government data indicates the changes could raise wages by up to 4%, approximately $2,500 per annum for the average worker. The Productivity Commission estimates these changes could boost Australia’s GDP by up to $5 billion.

What Should Employers and Employees Do Now?

Employers should review their existing employment contracts and agreements, and monitor updates from the Australian Government, Australian Competition and Consumer Commission (ACCC) and Fair Work Commission. It is also a good idea to review IP clauses to ensure their adequacy. It is important to seek legal advice when restructuring these agreements, and before relying on any narrow exemptions as a safety net.

For employees, it is a lot simpler. Know your rights, and do not be intimidated to look for jobs with better working conditions and pay.

The proposed changes are controversial. Regardless of your thoughts, it is important to note that they have not passed legislation yet.

If you have any questions about how these changes will affect your small business, please do not hesitate to contact me. I am here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.