You’ve left your job, you’re full of ideas, and you want to start your own business. But before you launch, there’s an important question: can your old employer stop you?
Many employment contracts include non-compete clauses. These restraints don’t automatically prevent you from starting a new business, but they can expose you to costly litigation if ignored. Whether you can safely proceed depends on the specific wording of your contract, the location, the nature of your new venture, and whether your former employer is likely to enforce the restraint.
This article goes beyond the basics. Our employment law lawyers explore practical legal considerations for entrepreneurs, how courts treat restraints, and steps to reduce risk when moving from employee to competitor.
Key Takeaways
Starting a competing business is not always prohibited by a non-compete clause – it depends on scope, geography, and time limits.
Enforcement depends as much on the employer’s appetite to pursue legal action as on the clause itself.
Courts balance the employer’s legitimate interests with the employee’s right to earn a living.
Taking steps like independent legal review, careful planning, and avoiding misuse of confidential information can reduce risk.
Non-competes differ across industries and states, so context matters.
The Legal Reality of Non-Competes and New Businesses
1. It Depends on the Clause
Not all non-compete or restraint of trade clauses are created equal. Some are so broad (e.g. “you may not work in any business in Australia”) that they are unlikely to hold up.
Others are tightly drafted to cover specific competitors, industries, or customer groups, making them more enforceable.
2. Location and Jurisdiction Matter
Australian courts treat restraints differently depending on the state.
For example, in New South Wales, the Restraints of Trade Act 1976 (NSW) gives courts the power to modify clauses to make them reasonable, while other states may not allow this flexibility.
Importantly, the governing law clause in your employment contract will usually determine which state’s laws apply. This means that even if you work in Queensland, if your contract states it is governed by New South Wales law, a NSW court approach to restraints could apply.
For a complete breakdown of enforceability, read our legal guide to non-compete clauses in Australia.
3. Employer Appetite for Enforcement
Even with a strong restraint, some employers simply won’t pursue action – litigation is expensive, time-consuming, and reputationally risky.
Others, particularly in industries like professional services, tech, and recruitment where competition is fierce, may actively enforce their rights.
4. Confidential Information vs. General Knowledge
Courts will always protect confidential information and trade secrets. But they won’t stop you from using your own skills, expertise, and general knowledge to build a business. The line between the two can be blurry, so caution is needed.
Learn about the upcoming reforms in our article on the ban on most non-compete clauses in Australia by 2027
Practical Legal Tips for Aspiring Entrepreneurs
Get an Independent Contract Review
Before resigning or launching, have a lawyer review your employment agreement. They can assess whether the restraint is likely enforceable and where the risks lie.
If you’re new to the concept, start with the basics: what is a non-compete clause under Australian law.
Avoid Soliciting Clients and Colleagues (At least initially)
Even if your restraint seems weak, targeting your former employer’s clients or poaching employees is a red flag and often easier to prove in court. Focus first on building new networks.
Many contracts include non-solicitation restraints – explore how these work in our guide to solicitation and restraint of trade clauses in Australia.
Plan Your Business Structure Carefully
If you incorporate a company or register a business name while still employed, your employer may argue you breached your duty of good faith. Timing is critical.
Document Your Independence
Keep clear records showing that you built your new business without using confidential materials from your old employer. This can be powerful evidence if challenged.
Consider Negotiation
Sometimes, employers are open to releasing or narrowing a restraint (especially if your new business doesn’t directly threaten their market). A respectful conversation may prevent conflict.
Real-Life Example
A senior consultant at a recruitment firm resigned to start their own boutique agency. Their contract included a 6-month non-compete clause preventing them from “carrying on or being involved in recruitment anywhere in Queensland.”
Although the restraint applied to Queensland, the contract was governed by New South Wales law. This meant the clause could potentially be enforced, at least in part, under the Restraints of Trade Act 1976 (NSW).
With legal advice, the consultant took precautionary steps:
Avoided approaching existing clients for the 6-month period;
Focused on industries the former employer didn’t service; and
Kept detailed records showing no confidential information was misused.
The business launched without incident, and the former employer chose not to pursue enforcement.
By taking proactive, risk-management steps, the consultant reduced the likelihood of a dispute and protected their new venture.
Frequently Asked Questions (FAQs)
Can I start setting up my new business before I resign?
Be very careful. While planning may be allowed, actively trading, registering a business in your industry, or diverting opportunities before resigning could breach your duties.
For broader guidance, see our step-by-step resource on how to start a business in Australia.
If I ignore a non-compete, what’s the worst that can happen?
Your former employer could seek an injunction stopping your business activities, plus claim damages for financial loss. Even if you ultimately win, litigation can be expensive and stressful.
Do all employers actually enforce non-competes?
No. Many employers won’t take action unless they see a real threat. But you can’t rely on this – assume enforcement is possible and plan accordingly.
Can I get around a non-compete by having a family member or partner run the business?
Not usually. Courts can look at the substance of the arrangement, not just who the legal owner is. If you’re effectively running it, you could still be in breach.
Should I wait until the non-compete period ends before launching?
It depends on your appetite for risk. Sometimes a staged approach (such as soft-launching aspects of your business while avoiding restricted activities) is a safer, lower-risk strategy.
A dedicated startup lawyer can help your new business in Australia avoid legal risks from day one.
