In the 2025-26 Federal Budget, the Government announced plans to ban non-compete clauses and “no poach” agreements for low- and middle-income workers. They will also consult on the use of non-compete clauses for high-income workers (currently anyone earning over $175,000).
This decision comes after a report by the Australian Bureau of Statistics (ABS) found that 46.9% of businesses use some type of restraint clause, even for non-executive roles. The survey also showed that 20.8% of businesses apply non-compete clauses to at least some of their employees, and 68.2% use them for more than three-quarters of their staff.
From an economic standpoint, these restraints reduce job mobility, which negatively affects wage growth and innovation. Productivity is also a concern, as Australia’s productivity has decreased over the past 20 years. According to Treasury’s consultation paper, non-compete clauses limit competition by discouraging workers from leaving their jobs, making it harder for new businesses to enter the market or existing businesses to grow.
A Productivity Commission report suggests that limiting the use of unfair restraint of trade clauses could lead to higher wages for workers. Wages in industries that heavily use non-compete clauses could rise by up to 2.4%, while other industries may see an increase of up to 1.4%.
Non-Competes: Current Situation
In Australia, non-compete clauses are generally enforced under common law. In most states, except New South Wales, these clauses are considered against the public interest and are usually unenforceable unless they are necessary to protect the employer’s legitimate interests.
In New South Wales, restraint of trade clauses are valid if they don’t go against public policy.
When non-competes are challenged in court, judges look at the business interest being protected (like confidential client information) and whether the restriction is reasonable, including its geographic area, time frame, and the activities it controls.
Legitimate interests include the protection of trade secrets or other sensitive data, protection against solicitation of clients with whom the former worker had a personal relationship, and protection against key staff being hired by a former colleague. An employer is liable to safeguard themselves against competition from a former worker.
What’s Now?
The ban was announced on non-compete clauses in the 2025-26 Federal Budget. According to the Government’s statement, it is likely to consult on policy details, including penalties, exemptions, and transition arrangements.
After consultation and the enactment of legislation, the reforms are expected to commence in 2027, functioning on a prospective basis. Currently, there is considerable uncertainty regarding this measure, even amidst the enthusiasm of Treasury economists, especially with the upcoming election looming.