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Non-Compete Clause Australia: A Legal Guide

Non-compete clauses are a critical component of employment contracts in Australia, designed to protect businesses from unfair competition by former employees. However, their enforceability depends on a delicate balance between protecting legitimate business interests and ensuring employees’ rights to work and earn a livelihood.

This legal article is written by our experienced employment contract lawyers. We explore the legal framework, enforceability, and practical considerations of non-compete clauses in Australia.

Key Takeaways

  • Designed to protect businesses from unfair competition by restricting former employees from competing or sharing sensitive information.

  • Under Australian law, non-compete clauses must be reasonable and necessary to protect legitimate business interests.

  • Enforceability depends on duration, geographical scope, scope of activities, and the legitimacy of the employer’s interests.

  • Governed by Common Law principles, the Competition and Consumer Act 2010, and influenced by the Fair Work Act 2009.

  • When drafting a non compete clause, use reasonable timeframes (1–12 months), narrow geographical limits, clear activity restrictions, and cascading clauses for flexibility.

  • Courts carefully balance employer protections and employee rights, often severing overly broad terms while upholding reasonable ones.

  • Employment contract clauses must be tailored to roles, define legitimate interests clearly. Ensure restraints are proportionate to the level of risk and business impact.

Farrah Motley holds degrees from the Queensland University of Technology in both law and accounting. Farrah is a registered Australian Legal Practitioner and has been pracising employment law for over a decade

What is a Non-Compete Clause?

A non-compete clause, also known as a restraint of trade clause, is a contractual term that restricts an employee from engaging in competing activities after their employment ends. These clauses aim to:

  • Prevent employees from working for competitors or starting a competing business.
  • Protect confidential information, trade secrets, and customer relationships.
  • Safeguard the employer’s market position and workforce stability.

Are Non-Compete Clauses Enforceable in Australia?

Under Australian law, non-compete clauses are assessed based on the common law doctrine of restraint of trade. They are prima facie unenforceable unless the employer can prove that the clause is:

  • Reasonable: The clause must not impose excessive restrictions on the employee’s ability to earn an income.
  • Necessary: It must protect legitimate business interests, such as confidential information or customer relationships.

Factors Courts Consider

Courts assess the following factors when determining enforceability:

Factor

Explanation

Duration

The length of time the restriction applies.

Geographical Scope

The physical area covered by the clause.

Scope of Activities

The specific activities the employee is prohibited from performing.

Legitimate Interests

Whether the employer’s interests justify the restriction (e.g., trade secrets).

Key Legal Frameworks Governing Non-Compete Clauses

  • Common Law Principles: Courts assess reasonableness and necessity on a case-by-case basis.
  • Competition and Consumer Act 2010 (Cth): Non-compete clauses must not unduly restrict competition or harm public interest.
  • Fair Work Act 2009 (Cth): While not directly addressing non-compete clauses, it influences general employment conditions and rights.
Brooke is a senior Australian lawyer. Brooke is admitted to the Supreme Court of Queensland and the High Court of Australia

Drafting an Enforceable Non-Compete Clause

To increase the likelihood of enforceability, employers should carefully draft non-compete clauses by considering the following:

Factor

Best Practices

Reasonableness

Ensure the clause does not overly restrict the employee’s ability to earn an income.

Duration

Limit the restraint period to what is necessary (e.g., 1–12 months).

Geographical Scope

Use narrow and specific geographic limits relevant to the business’s operations.

Restricted Activities

Clearly define prohibited activities (e.g., working for competitors, poaching clients).

Practical Tips for Employers

  • Define Legitimate Interests: Clearly identify what you aim to protect (e.g., trade secrets, customer relationships).
  • Use Cascading Clauses: Include step-down provisions for duration, geography, and activities to improve enforceability.
  • Tailor Clauses to Roles: Apply stricter restraints to senior employees or those with access to sensitive information.

Case Studies: Judicial Approach in Australia

Australian courts have demonstrated a cautious approach to enforcing non-compete clauses. Key cases include:

  • Barker v The Commonwealth Bank of Australia [2012] FCA 942

The court emphasised the importance of balancing employer interests with employee rights.

  • Just Group Ltd v Amerind Pty Ltd [2018] VSC 143

A clause was struck down due to excessive duration and geographical scope.

  • Apostolakis v ITG Pty Ltd [2019] NSWSC 1224

The court severed unreasonable parts of a clause while upholding the rest, showcasing flexibility.

FAQs About Non-Compete Clauses in Australia

What makes a non-compete clause unenforceable?

Unreasonable duration, broad geographical scope, or restrictions not tied to legitimate business interests.

Typically 1–12 months, depending on the industry and role.

Only if necessary to protect legitimate interests, such as highly confidential information.

Employers may seek an injunction or damages, provided they can prove harm caused by the breach.

Yes, an employer can enforce a non-compete clause after redundancy, but its enforceability depends on the specific circumstances and the reasonableness of the clause.

Australian courts assess whether the clause is necessary to protect the employer’s legitimate business interests, such as confidential information, trade secrets, or customer relationships. 

Non-compete clauses are most commonly used in industries where protecting sensitive information, client relationships, and intellectual property is critical. These industries include:

IndustryReason for Non-Compete Clauses
Technology and ITTo protect proprietary software, algorithms, and trade secrets.
Professional ServicesTo safeguard client relationships and confidential business strategies (e.g., law, accounting).
Healthcare and PharmaceuticalsTo prevent employees from leveraging patient lists, research data, or proprietary drug formulas.
Sales and MarketingTo protect customer databases, pricing strategies, and market-sensitive information.
Finance and BankingTo secure client portfolios, investment strategies, and confidential financial data.
Manufacturing and EngineeringTo protect trade secrets, designs, and production processes.
Media and EntertainmentTo prevent talent or executives from joining competitors or starting rival ventures.

About the Author

Farrah Motley
Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

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