On 7 September 2026, the Australian Government released exposure draft legislation that will change how employers protect their business once an employee walks out the door.
If your contracts still lean on a standard non-compete clause to keep talent, clients and know-how in house, it is time to read the fine print. The proposed reforms would ban most non-compete clauses outright, prohibit co-worker non-solicitation clauses altogether, and outlaw the cascading restraint drafting that has been a staple of Australian employment contracts for decades.
The draft is not law yet, and it could still change before it passes. But the direction is unmistakable, and the changes go well beyond a simple ban. Some of the tools employers rely on will disappear. Others will survive, but only if they are drafted with real precision. Here is what actually matters for your business.
If you want a clearer picture of where your contracts stand, Prosper Law’s employment lawyers can walk through the changes with you before they take effect.
The Headline Changes
- Non-compete clauses would generally be banned for anyone earning at or below the Fair Work high-income threshold, which is $190,100 for the year ending 30 June 2027, and for every casual employee and pieceworker regardless of pay.
- Co-worker non-solicitation clauses would be banned outright, for every employee, at every income level.
- Cascading restraints, the familiar fallback drafting of alternative 12, 9, 6 and 3-month periods, would no longer be available. Employers must draft and defend one restriction.
- Customer non-solicitation clauses, confidentiality provisions, gardening leave and genuine retention incentives can all survive, provided they are properly drafted.
- A routine pay rise or promotion after the reforms commence could accidentally drag an old, protected restraint into the new rules.
- Threatening to enforce a dead clause could itself become unlawful, not just the clause.
- There is no fixed start date yet. Commencement is tied to the first quarter start date after the Bill receives Royal Assent.
Who Actually Loses Their Non-Compete
The proposed ban gives employees a statutory right to be free of non-compete terms if their annualised, full-time equivalent earnings sit at or below the high-income threshold. For the year ending 30 June 2027, that threshold is $190,100, and it will move each year as it is indexed.
Part-time employees are assessed on what they would earn working full-time at the same rate, so ordinary salary alone will not always answer the question.
Casual employees and pieceworkers get blanket protection. Their income is irrelevant.
The reforms are also designed to close the obvious workaround. A clause does not need the word “non-compete” in it to be caught. Anything that penalises an employee for joining a competitor, such as clawing back an earned bonus, cancelling severance, or demanding a large exit payment, is likely to be treated the same way.
For a deeper dive into how these clauses work today, see our guide to non-compete clauses in Australia.
What's Left for Your Highest Earners
Earning above $190,100 does not mean an employer can impose any restraint they like. A non-compete for a high-income employee will only hold up if it protects a genuine, recognised interest, such as real confidential information or a client relationship the employee built on the job, and if it is no broader than the actual risk that employee poses.
Simply wanting to keep a good employee is not enough. The draft materials are explicit that maintaining a stable workforce is not, on its own, a legitimate reason for a restraint. Executive contracts built on a one-size-fits-all restraint template will need a rethink, tied to what that specific person actually knows or controls.
The Cascading Clause Is Dead, and So Is Poaching Ban Wording
Two of the most common drafting habits in Australian employment contracts are about to disappear.
The first is the familiar cascading restraint, which lists several alternative periods (say, 12, 9, 6 and 3 months) or several alternative geographic areas, and hope a court enforces whichever one survives. That drafting technique will no longer work. Employers will need to pick a single restriction and be ready to justify it from day one.
The second is the co-worker non-solicitation clause. This is the term stopping a departing employee from recruiting former colleagues, contractors, labour-hire staff or trainees. Under the proposed reforms, this is banned for everyone, regardless of seniority or salary. The definition of “co-worker” is broad enough to catch contractors, subcontractors, apprentices and even volunteers, so a clause aimed at protecting your team from a mass walkout will need to be rebuilt from scratch using other tools.
Read more about when non-compete clauses are enforceable under the current law in our guide.
The Clause You Actually Care About Survives
Here is the good news. The restraint most employers genuinely worry about, stopping a departing employee from taking clients with them, is not being scrapped.
Customer non-solicitation clauses can generally remain enforceable, provided they protect a real business connection and are reasonable in scope and length. If an employee spent two years building a relationship with your biggest account, a properly drafted clause preventing them from chasing that client can still do its job.
The days of a blanket “cannot approach any customer of the company” clause are numbered, though. The restraint has to match the actual relationship the employee built, not the size of your customer list.
Though, it’s worth being realistic about what this clause actually does in practice. It stops the employee from soliciting your client. It does not stop the client from picking up the phone themselves and following that person to their new employer, and it never has. A non-solicitation clause protects you against active pursuit, not against a client exercising their own choice. If client relationships are genuinely the risk you are trying to manage, the clause is one part of the answer, not the whole answer, and it works best alongside things like account handover plans and a broader client relationship that does not sit entirely with one employee.
This is also where employers most often blur the line between different types of restraint. Our article on solicitation and restraint of trade clauses walks through the distinction in more detail.
Your Real Toolkit After the Reforms
Beyond customer restraints, three tools remain squarely available:
- Confidentiality clauses: protecting genuine trade secrets, pricing, client data and strategic plans stay enforceable, as long as they protect real information rather than acting as a disguised non-compete.
- Gardening leave and genuine notice periods: where a departing employee stays employed and paid while their access to clients and information winds down, are unaffected. For senior staff with sensitive knowledge, this may become the most reliable tool in the box.
- Retention incentives: such as deferred bonuses or vesting equity tied to service, remain lawful, provided they reward staying rather than punish leaving. A scheme that claws back a large sum the moment someone joins a rival looks a lot like a non-compete in disguise.
If you are buying or selling a business, note that restraints in a sale agreement or shareholder deed generally sit outside this regime entirely, though other rules can still apply.
The Trap Hiding in Your Next Pay Review
This is the detail most businesses will miss. Existing restraints do not automatically disappear when the law changes. They stay on foot until the employment arrangement is varied.
That sounds reassuring, until you consider what counts as a variation. For example, a pay rise, a promotion, a change in hours, or a new incentive scheme. Any of these, agreed after the reforms commence, could pull an otherwise protected legacy clause straight into the new rules, potentially even if the variation has nothing to do with the restraint itself.
In practice, this means every annual remuneration review or promotion conversation from here on is also, quietly, a restraint review. Employers who do not build that check into their HR process risk losing protection they thought they still had.
The Cost of Getting This Wrong
Breaching the proposed rules is not just a matter of a clause being struck out. The draft creates real financial exposure.
Individuals could face penalties of up to 60 penalty units for an ordinary breach, or up to 600 penalty units for a serious one. Corporations face up to five times those amounts under the existing Fair Work Act penalty structure.
Employers can also be penalised simply for threatening to enforce a restraint that has no legal effect. A demand letter or cease and desist notice sent to a departing employee, based on a clause that turns out to be unenforceable under the new rules, could itself be the unlawful act. Standard enforcement playbooks will need a second look before anyone sends a letter.
A Quick Example
Picture a sales manager on $160,000 a year. Her contract has a 12-month non-compete, a fallback set of 12, 9, 6 and 3-month options in case a court knocks the first one down, a clause stopping her from recruiting anyone else at the company, and a clause stopping her from approaching clients she worked with.
Under the proposed rules, three of those four clauses fall over. The non-compete goes, because she earns below the $190,100 threshold. The cascading fallback periods go too, because that drafting style is banned outright. The ban on recruiting colleagues goes as well, and this one has nothing to do with her salary, co-worker non-solicitation clauses are banned regardless of income.
The customer clause is the one that might survive, and only because it is doing a genuinely different job – protecting a specific relationship she built, not blocking her from working at all. Whether it holds up will still come down to how it was drafted and how reasonable it is.
That is the real lesson here. A single contract can lose most of its protection while keeping one clause intact, and the only way to know which is which is to look at what each clause is actually trying to do, not what it is called.
What Employers Should Do Now
Four things, starting today:
- Audit what you actually have: Pull every employment contract, executive deed, incentive plan and policy that touches non-compete, non-solicitation or cascading restraint wording. Most businesses are surprised by how much of this sits outside the core employment contract, in deeds and policy documents nobody has reviewed in years.
- Map your people against the threshold: Work out who sits above and below $190,100, and separate out your casuals and pieceworkers, since they are protected regardless of pay.
- Tie every restraint to a real reason: Stop drafting restraints because a role is senior. Start asking what specific information or relationship that person could actually damage if they left, and draft to that risk.
- Build restraint checks into your HR calendar: Every salary review, promotion and incentive change should now trigger a quick check on whether it touches an existing restraint.
None of this needs to happen alone. Prosper Law’s employment lawyers can run the audit with you, flag which clauses are actually at risk, and help you fix them before the reforms land.
Talk to Us Before You Redraft Anything
The businesses that come out of this well will not be the ones who deleted every restraint clause in a panic. They will be the ones who worked out exactly what risk they are protecting against and built the right tool for that risk, before the reforms took effect.
Prosper Law’s employment lawyers help Australian businesses audit existing restraints, redraft what needs redrafting, and keep pay reviews and promotions from accidentally undoing protection they still rely on. If your contracts contain non-compete or non-solicitation clauses, contact us to talk through what these reforms mean for your business.
Frequently Asked Questions
When will the non-compete ban actually start in Australia?
There is no fixed commencement date yet. The exposure draft proposes that the relevant schedule commence on the first 1 January, 1 April, 1 July or 1 October after the legislation receives Royal Assent, with some civil penalty provisions applying only after a further six-month period for new employment arrangements. Employers should be wary of any source quoting a specific date, such as 1 July 2027, as confirmed, since commencement depends entirely on when the Bill passes and receives Royal Assent.
Are non-compete clauses still enforceable in Australia right now?
Under the current law, yes, in some circumstances. Australian courts have long treated non-compete clauses as void unless the employer can show the restraint is reasonably necessary to protect a legitimate business interest, such as confidential information or client connections. Once the proposed reforms commence, that analysis changes substantially for lower and middle-income employees, who would gain an automatic statutory right to be free of non-compete terms regardless of how reasonable the clause looks on paper.
Will my existing non-compete clauses become void automatically?
Not automatically, and this is the detail employers most often get wrong. Restraints entered into before the reforms commence would generally continue to operate under their original terms. The risk sits in what happens next: if the employment arrangement is later varied, through a pay rise, a promotion, a change in hours or a new incentive scheme, the restraint can be pulled into the new regime even though the variation had nothing to do with the clause itself. Employers should treat every future contract variation as a trigger to check the restraint’s status, not assume old clauses are permanently grandfathered.
What penalties apply if an employer breaches the non-compete ban?
The proposed penalties go further than simply having a clause struck out as unenforceable. Individuals could face up to 60 penalty units for an ordinary contravention or up to 600 penalty units for a serious one, with corporations liable for up to five times those amounts under the existing Fair Work Act penalty framework. Employers can also be penalised for threatening to enforce a restraint that has no legal effect, which means a demand letter or cease and desist notice built on an unenforceable clause could itself expose the business to liability.
This is a fast-moving area of law. We’ll keep this page updated as the draft legislation progresses, so check back here for the latest.
Last updated 10 September 2026.
About the Author
Farrah Motley
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