New Non-Compete Laws in Australia

In a bold move to dismantle invisible barriers and spark economic dynamism, the Albanese Government has proposed banning non‑compete clauses for a broad swathe of Australian workers. Here’s what you need to know—and why it matters.

Non‑compete clauses are legal restraints in employment contracts designed to prevent individuals from working for competitors or launching similar businesses within a set geographic area or timeframe after their departure.

While often used for senior employees protecting trade secrets, they’ve crept into contracts for roles like hairdressers, construction workers, childcare staff—and even lower-paid roles. The ABS now estimates that in 2024, 46.9% of Australian businesses were using some form of restraint clause and one in five availing themselves of non-compete clause.

The Proposed Laws

Under the new laws, workers earning below the high‑income threshold—currently set at A$175,000.00 annually under the Fair Work Act 2009 (Cth) —will no longer be subject to enforceable non‑compete clauses.

If legislation is passed as proposed, the ban will be phased in from 2027, giving employers and workers time to adapt. 

It is anticipated that the passage of these laws will see a multitude of economic benefits. These include a wage boost where affected workers could see their pay rise by up to 4%, which translates to about A$2,500 extra per year for someone earning the median wage. Another benefit is to economic growth where the Productivity Commission estimates this shift could deliver around A$5 billion to Australia’s annual GDP, improve productivity, and help curb inflation.

The government believes that these clauses have become a silent drag on economic vitality, especially affecting low- and middle-income workers who often feel stuck—even when the clauses are legally weak.

While the government is still in the consulting phase for the legislation, a number of exemptions to the proposed ban are being considered including for independent contractors and certain small businesses.

Benefits of the Proposed Laws for Businesses

Focus on Protecting Real Business Assets

With non‑compete clauses largely off the table for workers earning under A$175,000, businesses can no longer lean on them as catch-all protections. Instead, they'll be nudged toward using more targeted legal instruments such as:

• Confidentiality and non-disclosure agreements (NDAs)
• Non-solicitation clauses
• Garden-leave arrangements
• Intellectual property ownership provisions

These tools protect legitimate interests—like trade secrets, client relationships, and key strategic insights—without suppressing workforce mobility

Better Talent Retention

As legal restraints lose validity, companies must rely more on positive retention strategies. Companies will likely have to offer more competitive compensation and benefits in conjunction with investing in professional development and career progression. Those businesses should also seek to build a strong organizational culture. This shift encourages healthier workplace dynamics—boosting morale, loyalty, and long-term engagement.

Boosted Competition and Innovation

The reforms are designed to open up the labour market, allowing talent to flow more freely between companies and industries. The expected outcomes should lead to increased productivity, greater workforce dynamism and new business ventures. For businesses, this translates to a more vibrant competitive environment—spurring innovation and forcing firms to continually evolve and differentiate.

Reduced Litigation Over Employee Mobility

Non‑compete clauses frequently lead to costly legal skirmishes—even where enforceability is weak. With the new prohibitions, employers save on legal fees and potential damages and employees face fewer barriers when transitioning roles or starting businesses, eliminating the chilling effect of restrictive clauses. This clarity streamlines HR processes and reduces friction during workforce changes.

Policy Clarity Supports Effective Workforce Planning

By aligning low- and middle-income employee protections with realistic job expectations, employers gain legal certainty around enforceability of employment terms. Additionally, HR and legal teams can redesign contracts proactively, prioritizing enforceable, fair, and transparent protections This clarity enhances strategic planning, supports talent mobility, and minimizes contract-related surprises.

Challenges of Outlawing Non-Compete Laws for Businesses

Reduced Protection of Commercial Interests

A key danger of banning non-compete clauses is the risk to the commercial interests of businesses. Without non-compete clauses, businesses lose a legal tool to prevent ex-employees from immediately joining or starting a direct competitor. Additionally, businesses will be unable to protect client relationships, especially in industries where staff act as key customer interfaces (e.g. consulting, financial services, real estate). The ability to safeguard proprietary systems, confidential know-how and derive maximum benefit from investments in employee training is also greatly diminished. It is likely that competitors will see these new laws as opportunities to poach trained employees more easily, potentially eroding competitive advantage.

Increased Risk of Talent Poaching

These changes also risk comprising retention of skilled employees. Without enforceable non-competes, employees can move directly to competitors or even start a rival business while possessing and being familiar with the operations and know-how of their former business. This may therefore encourage aggressive talent raiding, especially in niche industries or tight labour markets. Businesses may need to pay more or lock in staff via incentives causing an increase in costs.

Higher Recruitment and Retention Costs

To retain employees now that legal barriers are weaker, employers may need to offer greater compensation to employees. This can include offering higher salaries or the introduction of retention bonuses, equity plans etc. It will also likely be necessary to improve working conditions or upskill HR and management practices leading to increase costs for businesses.

Pressure on Small and Medium Enterprises (SMEs)

The new changes to non-compete clauses will be significantly felt by smaller businesses. While larger corporations may absorb the policy shift, SMEs face more difficulty as they possess limited legal and financial resources to craft alternatives along with a greater risk if a key employee leaves and takes clients or IP.  Small businesses also find it harder to compete for talent in a more mobile labour market. SME’s may therefore feel more exposed and vulnerable without the ability to use basic restraint clause.

Increased Complexity in Contract Management

Prohibiting non-compete clauses will necessitate a different and altered approach for entities when it comes to drafting employment agreements. Businesses will need to review and redraft employment contracts to remove unenforceable non-compete clauses. Companies will also have to rely more heavily on alternative protections (e.g. non-solicitation, IP ownership, confidentiality) and consult legal experts more frequently to stay compliant. As a result, legal costs and HR complexity may rise in the short term.

Overcoming Possible Problems

The banning of Non-Compete laws can propose serious problems to businesses (as set out above). Businesses may therefore need to consider a number of options to reduce risks to their businesses that may eventuate if Non-Compete bans are introduced.

A good first step by businesses is to identify if any of their employment contracts contain non-compete clauses. High-Risk roles (client-facing, sales, IP-sensitive etc.) should be prioritised. Any contracts that contain non-compete clauses should be noted.

If any of the contracts contain Non-Compete clauses, businesses should consider developing alternative legal protections. This could be in the form of Non-Disclosure Agreements, adding non-solicitation clauses and inserting enforceable intellectual property clauses are enforceable.

Company’s may therefore seek to consult legal advisors and obtain advice on drafting new templates that are compliant with any ban and replacing non-compete clauses with enforceable alternatives.

To prevent non-compete issues from arising, businesses should review and enhance retention strategies. This may be in the form of implementing performance, based bonuses, equity or profit sharing. Companies may also want to invest in training and career development programs and strive to foster a strong company culture.

In any case, employers should strengthen their exit procedures to ensure that departing employees acknowledge their obligations, return company property and data and are aware of intellectual property and post-employment duties. Companies may also want to consider giving gardening leave to more senior or critical roles.

Summary

The intent of the law is to enhance worker mobility, drive economic productivity, and encourage wage growth. But for businesses—especially in skills-intensive or relationship-heavy industries—this reform introduces real legal, strategic, and operational risks. Businesses should monitor the developments of banning non-competes closely and consider ways to overcome the challenges they present should the laws be introduced.