The Australian Government plans to ban most post-employment non-compete clauses by 2027.
Employers must act now to review contracts, strengthen confidentiality protections, and prepare for increased employee mobility. For employees, the change promises greater freedom to change jobs, negotiate higher wages, and launch start-ups without fear of costly litigation.
In this article, our employment lawyers explain the key elements of the proposed ban, analyses its likely impact, and provides practical steps organisations should take now.
Key Takeaways
- The Government proposes to prohibit most non-compete clauses in employment contracts by 2027
- Limited exceptions are expected for equity owners, senior executives with significant strategic knowledge, and business sale agreements above a monetary threshold
- Existing restraints written into current contracts will become unenforceable when the law commences unless they fall within an exception
- Employers should focus on alternative protections such as confidentiality, non-solicitation, garden leave, and intellectual property assignments
- An audit of all template contracts and employment policies should be completed before the legislation commences
What is a Non-Compete Clause?
A non-compete clause (also called a restraint of trade or post-employment restraint) is a contractual term that seeks to prevent an employee from working for a competitor or starting a competing business for a defined period and/or geographic area after leaving employment.
Under Australia’s current common-law approach:
- These clauses are typically presumed void, unless the employer proves it is reasonably necessary to protect a legitimate interest
- Courts assess reasonableness by reference to scope, duration, geography, and the employee’s position
- If a clause is too broad, courts may strike it down or apply the “blue-pencil” test to read down the restraint
New to this topic? For a deeper understanding of how non-compete clauses are defined and enforced under Australian law, read our comprehensive legal guide to non-compete clauses.
Why is the Government Banning Non-Competes?
Key factors driving the proposed changes include:
- Concerns that restraints suppress wage growth and labour mobility
- Evidence of reduced start-up formation in sectors with widespread non-competes
- Policy alignment with international moves (such as reforms in the United States and Europe)
- Productivity Commission and Treasury modelling indicating GDP gains if restraints are curtailed
In April 2025, Treasury released the Exposure Draft of the proposed Competition and Consumer Amendment (Employee Mobility) Bill 2025. This draft legislation proposes significant reforms to post-employment restraints and would insert a new Part 4-6 into the Competition and Consumer Act 2010 (Cth).
Public consultation closed on 30 June 2025. The final Bill is expected to be introduced to Parliament in 2026, with reforms potentially commencing from 1 July 2027 (subject to its passing).
How Will the Non-Compete Ban Operate?
General Rule
From 2027, clauses that restrict an individual from performing work or operating a business after employment ends will be void and unenforceable.
The prohibition will apply regardless of whether the restraint is expressed as:
- Non-compete
- “Around-the-corner” restraint
- Industry-specific exclusion zone
Additionally, “no-poach” and “wage-fixing” agreements between employers will attract civil penalties under the cartel provisions of the Competition and Consumer Act 2010 (Cth).
Statutory Exceptions
The Exposure Draft identifies narrow carve-outs. A clause will remain valid if all of the following are satisfied:
The employee held ≥10% equity in the business at the time of agreement
The employee was a senior executive under the Corporations Act 2001 (Cth)
The restraint period is no longer than 12 months
The employer pays ≥50% of base salary during the restraint period
Separate provisions will permit restraints in a business sale agreement where:
- The sale consideration exceeds $5 million
- The seller owns at least 10 per cent of the shares or business assets being sold
- The restraint period is capped at three years
Find out more about when and how a non-compete clause should be enforced by reviewing our article on when non-compete clauses are enforceable.
Transitional Arrangements
Existing clauses will remain enforceable only for 12 months after the law commences unless they meet the new requirements.
Employers will no longer be able to rely on the “blue-pencil” severance test to salvage the restraints, as the statute expressly disapplies that doctrine for invalid clauses.
Impact on Employees
Employees and independent contractors stand to benefit in several ways:
- Greater bargaining power when changing jobs
- Freedom to launch competing start-ups sooner
- Fewer expensive legal disputes over restraint breaches
The Government anticipates that wages could increase across high-skill sectors as employee mobility improves (Treasury, 2025).
Impact on Employers
Practical Risks
Australian employers currently rely on non-compete clauses to protect “soft” assets such as know-how, pricing strategy, and customer goodwill.
Removal of those restraints raises several risks for businesses, including:
- Increased staff poaching by competitors
- Loss of commercially sensitive information
- Difficulties justifying investment in niche employee training
Lawful Alternatives to Protect Business Interests
To mitigate these risks, organisations should strengthen lawful alternatives. The following measures carry a lower risk of statutory invalidity:
- Robust confidentiality and IP ownership clauses
- Non-solicitation and non-dealing provisions limited to clients, suppliers, and employees
- Gardener-leave clauses that keep employees on payroll during notice periods
- Specific liquidated damages linked to confidentiality breaches
- Deferred equity or retention bonuses conditioned on protecting trade secrets
Understand the distinction between solicitation and broader restraints in our post on solicitation vs restraint of trade clauses.
How Employers Should Prepare for the Ban
1. Create a cross-functional team (HR, legal, IT, leadership)
2. Audit contracts:
- Identify all agreements with post-employment restraints
- Record scope, geography, and expiry dates
3. Review policies and documents:
- Update staff handbooks, offer letters, deeds, and incentive plans
4. Update contract terms:
- Strengthen confidentiality, IP, and non-solicitation clauses
- Add gardener leave and liquidated damages where appropriate
5. Educate leadership:
- Train on legal changes and permissible enforcement tools
6. Revise remuneration:
- Implement equity cliff vesting or retention bonuses
- Tie incentives to confidentiality compliance
7. Plan litigation strategy:
- Identify existing restraint disputes
- Consider early settlement options
If you’re buying or selling a business, learn how to manage employee restraints by reading our article on employment law in business acquisitions.
Comparison with Other Jurisdictions
Jurisdiction | Reform Status | Key Features |
United States (Federal) | FTC final rule expected late 2025 | Broad ban on non-competes, limited senior executive exception |
United Kingdom | Government announced intention to cap non-competes at three months (consultation 2023) | Still enforceable if paid garden leave offered |
Germany | Non-compete valid if employer pays 50% remuneration during restraint | Maximum two years |
Australia (proposed) | Ban on most non-competes by 2027 | Narrow equity-holder and business sale exceptions; invalidity automatic |
Real Life Case Study: Technology Sales Manager
Scenario: A Sales Manager at a SaaS (Software-as-a-Service) company resigns to take a job with a direct competitor.
| Context | Current Law (2025) | After Reform (2027) |
|---|---|---|
| Employment Contract | Includes a 12-month non-compete covering all of Australia | Same contract terms, but the law has changed |
| Legal Outcome | A court might reduce the restraint to 6 months and limit it to certain states | The clause is automatically void, unless the employee held equity and meets other tests |
| Practical Result | The employee must wait several months or negotiate before joining a competitor | The employee can join the competitor immediately, subject to confidentiality rules |
Key Insight: Under the new law, most employees will no longer be blocked from moving to a competitor – even if their contract includes a restraint. Employers must rely on other tools (like confidentiality clauses) to protect their business.
Frequently Asked Questions
When will the non-compete ban take effect?
The Government’s target commencement date is 1 July 2027, subject to the passing of the Competition and Consumer Amendment (Employee Mobility) Bill 2025.
Will existing non-compete clauses remain valid?
No, unless they fall within a statutory exception they will become unenforceable 12 months after the law commences.
Are non-solicitation clauses also banned?
No, the reform focuses on employment-wide competition restraints only. Reasonable non-solicitation provisions for clients, suppliers, and employees will remain lawful.
Can an employer still prevent disclosure of confidential information?
Yes, confidentiality and intellectual property clauses are unaffected and will remain enforceable under contract and equitable principles.
What happens if an employer tries to include a banned clause after 2027?
The clause will be void and the employer may face civil penalties under the Competition and Consumer Act 2010 (Cth).
Are garden-leave provisions allowed?
Yes, provided the employee continues to receive full ordinary remuneration during the garden-leave period.
If you engage executives, make sure your contracts are compliant with evolving laws.
Our employment law team has decades of experience drafting and enforcing restraint clauses. To discuss how the upcoming reforms could affect your business, contact us today!
