Proposed Ban on Non-Compete Clauses: What Employers Need to Know

The 2025–2026 Federal Budget has introduced a bold new proposal that could transform the way Australian businesses protect their competitive edge: a ban on post-employment non-compete clauses. While this is not yet law, the proposed changes could significantly impact how you manage and retain talent in the future.

So, what does this mean for you?

What Are Non-Compete Clauses?

Non-compete clauses are contractual terms that typically prevent employees from:

• Working for a competing business, or

• Starting a competing business,

for a defined period and within a defined geographic area after they leave your employment.

These clauses have long been used to protect intellectual property, trade secrets, and client relationships—but their days may be numbered.

What’s Being Proposed?

Under the proposed reforms to the Fair Work Act 2009 (Cth), the Federal Government intends to ban post-employment non-compete clauses, starting in 2027.

Key points:

• Applies to workers earning under the high-income threshold (currently $175,000 per annum as of 1 July, reviewed annually).

• The threshold is based on base salary only, excluding bonuses, commissions, or incentives.

• This means many high-performing, client-facing roles—who earn mostly via commissions—will fall under the ban.

• Employers will need to explore new strategies to protect business interests post-employment.

Why the Change?

This reform is part of the Federal Government’s broader competition agenda, inspired by international trends in the US and parts of Europe. The goal is to:

• Enhance workforce mobility

• Encourage innovation and start-ups

• Improve employee bargaining power

• Increase competition across industries

It’s estimated that over 3 million workers could be affected by the change, potentially unlocking a wave of entrepreneurial activity—but also introducing risks for businesses.

What Else Is on the Table?

In addition to banning non-compete clauses, the Government is considering:

• Banning non-solicitation clauses, which prevent former employees from poaching clients, staff or suppliers

• Applying the non-compete ban to higher-income earners

• Introducing penalties for non-compliance

• Setting out exemptions and transition arrangements

Public consultation is expected before any legislation is finalised.

What Can Employers Do?

While no immediate action is required, SMEs should start thinking about how they will protect their businesses in a post-non-compete world.

Proactive steps to consider:

• Review confidentiality and IP clauses in employment contracts—ensure they are clear, enforceable and fit for purpose

• Implement robust onboarding and offboarding processes to manage client data and company property

• Strengthen client relationships through service excellence and team continuity, rather than relying on restraints

• Explore loyalty and retention incentives for key staff

Now is the time to start reviewing your people risk strategy and considering how to adapt in a changing legal environment.

What’s Next?

The proposed changes are still in the consultation phase and are not yet law. Implementation is currently expected in 2027, giving employers time to prepare and adapt.

At Essential HR, we’ll keep you informed as more details emerge—including how to navigate any transitional arrangements and what alternatives may work best for your business.

Stay tuned for our updates—or contact us for personalised advice on future-proofing your employment contracts.