Proposed changes to non-compete clauses in employment contracts

If passed, the reforms would prevent employers from including non-compete clauses in contracts for employees earning below the Fair Work Act high-income threshold, currently $190,100 for the 2026-27 financial year. The changes are proposed to commence in 2027, with consultation still open until 2 October 2026.

What is a non-compete clause?

A non-compete clause is a contractual provision seeking to restrict an employee's activities after their employment ends. Generally, these cascading clauses prevent a former employee from:

• working for a competitor;
• establishing a competing business; or
• carrying out similar work within a specified area or for a specified period.

What are the proposed changes?

Under the draft legislation, non-compete clauses would generally be prohibited for employees earning below the high-income threshold.

At this stage, the proposal is intended to apply to contracts entered into, renewed, or varied after the commencement date. Existing contracts are not currently proposed to be automatically invalidated, although the final position will depend on the legislation ultimately passed.

For employees earning above the threshold, the current legal framework would continue to apply, with courts assessing whether a restraint is reasonable and necessary to protect a legitimate business interest.

What should employers and employees do now?

Although the reforms are not yet law, businesses may wish to review their employment contracts and consider whether existing confidentiality, intellectual property, and restraint provisions remain appropriate.

Employees considering a new role, negotiating contract changes, or reviewing post-employment obligations should also take the opportunity to understand what restrictions may currently apply.

Some aspects of the reforms remain under consultation, including the treatment of non-solicitation clauses, existing contracts, and certain remuneration structures.

A Practical Note

These proposed reforms may significantly affect the way employment contracts are drafted and enforced in the future. The practical impact will depend on the final form of the legislation and how it applies to individual circumstances.

You are welcome to contact us if you would like advice on your existing employment contracts, restraint provisions, or the potential impact of the proposed reforms.

This article provides general information only and is based on draft legislation released for consultation. It does not constitute legal advice. Specific advice should be obtained for individual circumstances.