Restraint of trade and non-solicitation clauses are common features in Australian employment contracts.
With major reforms announced to take effect from 2027, understanding how these clauses work (and what’s changing) is essential for both employers and employees.
This comprehensive guide, prepared by our non-compete lawyers, explains everything you need to know about restraint of trade law in Australia.
Key Takeaways
- The government announced reforms to worker restraints in the 2025–26 Budget. The reforms should take effect from 2027, following consultation and legislation passing parliament.
- This includes banning noncompete clauses for low and middle-income workers earning below the current high-income threshold.
- Non-solicitation clauses: These clauses restrict former employees from soliciting clients, customers, or colleagues from their former employer and remain largely unaffected by the proposed reforms
- There is a test of reasonableness applied to any restraint of trade clause when the courts consider enforcement.
- The common law position: restraints of trade are invalid and unenforceable for public policy reasons unless they protect an employer’s “legitimate business interests”
Understanding Restraint of Trade Clauses
A “restraint of trade” is an overarching term for a clause in an employment contract designed to prevent employees from using any confidential information obtained during their employment for the benefit of a direct competitor.
To understand how non-compete clauses operate in Australia, read our article on What is a Non-Compete Clause? for a clear breakdown of how these clauses restrict competition after employment ends.
Types of Restraint Clauses
- Non-Compete Clauses: These prevent former employees from working for competitors or starting a competing business within a certain geographic area and time period after leaving a company. These are the primary target of the upcoming federal reforms.
- Non-Solicitation Clauses: prevent employees from contacting or trying to get a client/customer or employee of the employer from moving to a competitor for a set period of time. These clauses protect both client relationships and workforce stability.
- Non-Disclosure Clauses: prevent employees from using or releasing the confidential information of their former employer for the benefit of a competitor. These focus specifically on protecting confidential information and trade secrets.
The Current Legal Framework in Australia
Under common law, restraints are only enforceable if they’re reasonable and protect a legitimate business interest.
Currently, in NSW, the Restraints of Trade Act 1976 (NSW) allows courts to modify (or “read down”) clauses rather than void them entirely.
Since November 2023, unfair contract term laws also apply to small business contracts, meaning overly broad restraint clauses (for example, seeking a restraint on other B2B relationships) could attract penalties.
For an in-depth explanation of how non-compete laws differ across states, explore Non-Compete Clause Australia: A Legal Guide.
Snapshot: What is Solicitation?
Courts interpret solicitation differently.
Narrow view
Interpreted as active encouragement (e.g. calling or emailing clients).
For example, this can occurs when the former employee takes steps to persuade or induce clients of the former employer to switch to a competing business.
Broader view (less common)
Where even passive conduct leading to client loss can count (e.g. clients following an ex-employee).
For example, situations where former clients initiate contact with the departed employee, or where the employee’s conduct, while not directly soliciting, results in client defection.
Legal Tip: The narrow versus broad views of solicitation affect the enforceability of restraint of trade clauses. If a court takes a narrow view, it may be harder for employers to enforce the clause. Conversely, a broad view may make it easier to enforce.
Common Examples of Solicitation
- Direct Client Contact: When former employees contact their previous employer’s clients and encourage them to switch to their own business, this is referred to as poaching or solicitation. This could include reaching out to clients via phone, email, or social media.
- Using Confidential Information: Former employees breach non-solicitation clauses when they use confidential information such as client lists or contact details to approach former clients. This applies even if the approach itself seems passive.
- Offering Incentives: Providing discounts, free services, or special offers to former clients specifically to encourage them to switch providers typically constitutes solicitation under both narrow and broad interpretations.
- Employee Recruitment Campaigns: Systematic attempts to recruit former colleagues, whether through direct contact, advertising targeted at the former workplace, or other organised efforts, usually breach non-solicitation clauses.
Learn when and how employers can lawfully enforce these restrictions in our guide, When Should a Non-Compete Clause Be Enforced?.
2027 Reforms: What’s Changing?
The government will ban non-compete clauses for employees earning below the high-income threshold, covering around 91% of Australian workers.
However, non-solicitation and confidentiality clauses will remain in force.
Learn more about these reforms in our article Australia to Ban Most Non-Competes by 2027.
Practical Compliance for Employers
In preparation of the 2027 reforms, employers should:
1. Review Current Contracts
Tailor restraint or non-compete clauses in your employment contracts specifically to the role and legitimate business needs. Avoid “boilerplate” wording that is generic and unlikely to stand up in court. Ensure the scope (time and geographic area) is the minimum required to protect the legitimate interest.
2. Consider Alternatives to Non-Competes
Although non-competes are being phased out for most workers, employers still have several tools to safeguard their interests. Include longer notice periods and reserve the right to place employees on garden leave, keeping them out of the market while still bound by contractual duties.
3. Strengthen Confidentiality Measures
Ensure confidentiality clauses are clearly worded, comprehensive, and survive termination. Define confidential information broadly to capture key business data, pricing, processes, and client intel.
4. Use Cascading Clauses
Use tiered or cascading clauses that scale back the time or geographical scope of a restraint. This maximises the chance that at least part of the clause will be upheld.
Legal Tip: Be sure to avoid Anti-Competitive practices. Agreements between businesses not to hire each other’s staff (no-poach or wage-fixing agreements) may breach competition law and attract ACCC penalties.
Tips for Employees
Employees need to remember to:
Know your contract: Understand what applies after you leave.
Stay compliant: Don’t contact former clients or staff until your restraint period ends.
- Document Everything: If clients contact you directly after leaving employment, document these interactions to demonstrate you haven’t actively solicited them.
Seek legal advice: Get clarity before starting with a competitor or new business.
Avenues for Enforcement and Remedies
Court Proceedings
Restraint disputes are generally litigated in State Supreme Courts (or Federal Court where ancillary federal issues arise).
Employers typically seek interim injunctions to prevent breaches while proceedings are ongoing.
Remedies Available
Courts can grant various remedies for breaches of restraint clauses, including injunctions to prevent further breaches, damages for losses suffered, and account of profits made through the breach.
Other Regulatory Roles
The Fair Work cannot advise on non-competes and does not enforce them; it manages workplace rights/protections and other Fair Work matters.
The Fair Work Ombudsman does not have jurisdiction over restraint of trade disputes.
Frequently Asked Questions
Will the 2027 reforms affect existing employment contracts?
The Consultation Paper states that the non-compete ban “is expected to apply prospectively from 2027 to employment contracts made or varied after the start date”, however notes that the Government is considering feedback on how the ban applies to existing employment contracts.
While the reforms may not apply retrospectively (yet), the reforms could well render void existing non-compete clauses in employment contracts.
Can I negotiate a restraint clause before signing my contract?
Absolutely. You can ask to narrow the time, geographic area, or scope of the restraint to ensure it’s fair and practical.
What happens if I breach a restraint of trade clause?
Your former employer may take legal action seeking an injunction (to stop the breach) or claim damages for losses suffered as a result.
Can an employer stop me from working for a competitor?
Only if a valid non-compete clause exists and it’s considered reasonable. Overly broad or unfair restraints are unlikely to be enforced by Australian courts.
How long can a restraint of trade clause last?
There’s no fixed limit. Courts assess each case individually, but generally, the restraint must last only as long as necessary to protect the employer’s interests – often between 3 and 12 months.
Thinking about starting your own business after leaving a job? Read Launching a Business After Employment to learn how to avoid breaching restraint clauses.
What constitutes the "high income threshold" for the reforms?
The contractor high income threshold for the year starting 1 July 2025 is $183,100. This figure is adjusted annually on 1 July. Employees earning above this amount may still be subject to non-compete clauses after the 2027 reforms.
Are non-solicitation clauses being banned too?
Currently, no. At this stage, other categories of restraint of trade clauses are not proposed to be banned and will remain valid, for the time being. However, the government is considering future reforms to non-solicitation clauses.
Discover practical strategies to reduce risks when staff move to competitors in Safeguard Your Business From Departing Employees.
What alternatives do employers have to non-compete clauses?
Shift from trying to “lock out” former employees, and instead double down on internal safeguards. Robust onboarding, data management controls, and ongoing education about confidentiality obligations. Other alternatives include longer notice periods, garden leave provisions, and comprehensive confidentiality agreements.
About the Author
Farrah Motley
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