As part of the 2025–26 Federal Budget, the Government announced its intention to ban non-compete clauses and “no-poach” agreements—a significant shift in Australia’s employment landscape.

What’s Changing?

The proposed reforms aim to prohibit the use of non-compete clauses for low and middle-income earners, and initiate consultation on their use for high-income employees (currently defined under the Fair Work Act as those earning above $175,000 annually).

The move comes in response to findings from the Australian Bureau of Statistics (ABS), which revealed:

• 46.9% of businesses surveyed use some form of restraint clause, even for non-executive roles.

• 20.8% use non-compete clauses for at least some staff.

• 68.2% use them for more than three-quarters of their workforce.

Why the Ban?

At the heart of the proposal is a desire to boost job mobility, wage growth, and economic productivity. Treasury’s consultation paper, Non-compete clauses and other restraints, states:

“The direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentives workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.”

The Productivity Commission estimates that curbing unreasonable restraint clauses could lead to:

• Wage increases of up to 2.4% in industries that heavily rely on non-compete clauses.

• Wage growth of up to 1.4% in other sectors.

The Current Legal Landscape

In Australia, non-compete clauses are enforced under common law. The general rule—outside of New South Wales—is that restraints are presumed void unless they are reasonably necessary to protect an employer’s legitimate business interests.

In NSW, however, the starting point is different: a restraint is valid unless it is against public policy.

When these clauses are challenged in court, judges assess:

• The legitimate business interest being protected—e.g., confidential client information, trade secrets, or protection against client poaching.

• The reasonableness of the clause in terms of geographic scope, time period, and activities covered.

• Whether the restriction goes beyond protecting legitimate interests and simply tries to stifle competition—which is not enforceable.

Employers cannot use a non-compete clause to shield themselves from mere competition by a former employee.

What’s Next?

The Government has indicated that it will begin a consultation process on:

• Policy design and scope,

• Exemptions,

• Penalties, and

• Transitional arrangements.

The reforms are expected to come into effect from 2027, subject to the outcome of the consultation process and the successful passage of legislation. Importantly, the changes will apply prospectively—meaning existing contracts may not be impacted immediately.

However, as with any major reform, there’s still considerable uncertainty—including how the measure will progress in the lead-up to the next federal election.

We’ll keep you updated as more details become available.