Proposed ban on non-competes
The Government has announced as part of the Budget for 2025/26 that it will introduce a statutory ban on ‘non-compete’ clauses for workers earning less than $175,000, to take effect from 2027.
The proposed bans follow previous consultation on this topic which was initiated by the Government in 2024. The reforms are proposed to allow workers to more easily switch jobs to boost wages, with the Government citing research that suggests the ban could ‘lift the wages of affected workers by up to four per cent, or about $2,500 per year for a worker on median wages’ and ‘improve productivity and add $5 billion or 0.2 per cent to GDP annually’.
The Government’s media release asserts that more than 3 million workers are covered by non-compete clauses including ‘childcare workers, construction workers, and hairdressers’ and that the Treasury’s Competition Taskforce Review ‘heard troubling accounts about the misuse of non‑compete clauses, including minimum wage workers being sued by former employers and workers being threatened with legal action if they switched jobs’. The ban is designed to address these perceived problems and the apparent concern that ‘Australians shouldn’t need a lawyer to go to a higher paying job’.
There is currently little detail on the proposed reforms, but the key points known so far are that:
the ban on non-competes will apply to workers earning less than the high‑income threshold in the Fair Work Act 2009 (Cth) (currently $175,000);
the ban will take effect from 2027, ‘operating prospectively to give businesses and workers time to adjust’;
in familiar language to employment practitioners, the Government also proposes to close ‘loopholes’ in competition law that currently allow businesses to:
fix wages by making anti‑competitive arrangements that cap workers’ pay and conditions, without the knowledge and agreement of affected workers; and
use ‘no‑poach’ agreements to block staff from being hired by competitors; and
these reforms are proposed to be brought about through amendments to the Competition and Consumer Act 2010 (Cth), which currently exempts employment agreements from the operation of the competition law regime. There may also be consequential amendments to the Fair Work Act 2009 (Cth).
The Government has said it will consult on policy details, including exemptions, penalties, and transitional arrangements.
Consequences of Australian businesses
If the ban is implemented there will clearly be work for employers and businesses to do in developing alternative strategies (such as utilising retention incentives) to secure against the risk of key workers seeking to compete against them, including in M&A transactions. We expect a period of consultation in which businesses can comment on the proposed reforms. Issues that will be important to consider include:
The scope of ‘workers’ covered – which would appear to extend beyond employees. How will this apply to independent contractors, including those engaged via incorporated entities?
How the relevant high-income threshold is to be calculated, including on a go forward basis. This might be particularly relevant for individuals who are working on a temporary or part-time basis – for example, a highly-paid executive working for a small number of hours per week but in a strategic position with access to valuable confidential information and customer relationships.
The scope and type of clause being banned – how will the reforms define a ‘non-compete clause’? How will amendments to the existing exemption in the Competition and Consumer Act be drafted?
Whether the ban will also apply to forfeiture conditions in bonus arrangements.
How the ban will be implemented and enforced – by the ACCC, FWC and/or through the courts? The ACCC has been a vocal advocate for these reforms, with ACCC Chair Gina Cass-Gottlieb recently calling for legislative clarity to ensure that the ACCC can challenge anti-competitive business practices under its existing powers, commenting that existing exemptions should not shield agreements from the regulator’s scrutiny.
Whether the applicable penalties will align with existing employment law offences or will match the existing civil penalties under the Competition and Consumer Act (with maximum penalties equalling the greater of $50 million, three times the value of the benefit obtained, or (if the court cannot determine the total value of those benefits) 30% of adjusted turnover during the ‘breach turnover period’).
The impact on existing arrangements – while the Government announcement suggests the ban will only apply prospectively, close attention will need to be paid to the details of any transitional arrangements.
Whether the ban will evolve to also extend to workers above the income threshold and extend to non-solicitation arrangements, noting these have been flagged as further areas of consideration by the Government. The extension of any ban to clauses preventing the solicitation of customers or co-workers would be a significant intrusion on the ability of an employer to protect their business and investment in staff, and will be a key area for business focus in any consultation process. Non-solicitation provisions do not, of themselves, prevent workers changing jobs so the policy justification for limiting the use of non-solicitation clauses must be examined in its own right and not conflated with non-competes, given their very different functions.
The impact on NSW legislation and potential inconsistency. Unlike other jurisdictions, in NSW non-competes are the subject of legislation – the Restraints of Trade Act 1976 – which changes the usual common law position, resulting in restraints being enforceable in NSW to the extent they are not against public policy, whether in severable terms or not.
What exceptions might apply? In particular, to what extent will the laws preserve the ability for purchasers of a business in the M&A context to protect the goodwill of that business by restraining key individuals from working for competitors or establishing competing companies.
