Yesterday the Federal government released its long-awaited draft legislation to ban the use of post-employment non-compete clauses for workers earning below the “high income threshold” and non-poaching clauses for all employees, together with extending the existing cartel framework to cover no-poach and wage-fixing arrangements between entities. If enacted, the legislation is intended to operate from 2027.
All employers will need to stay informed of these important developments and the extent to which the potential reforms are ultimately introduced into law.
If some of the proposed reforms are implemented, then clearly businesses will need to look to review their existing employment arrangements and documentation and to develop alternative strategies to secure against the risk of employees seeking to compete against them after their employment ceases.
Summary of key proposed changes
- Non-compete clauses will be banned from the employment arrangements of employees receiving annualised full-time equivalent earnings under the high income threshold.
- The mere existence of a non-compete term in an employment arrangement, even if the employer decides not to enforce the non-compete term, will be prohibited. Where that prohibition is breached, employers can be subject to significant penalties.
- Employers may also be penalised for enforcing, or threatening to enforce, a non-compete term when it has become unenforceable as a result of the application of the regime.
- Co-worker non-solicitation clauses will be banned from the employment arrangements of all employees, regardless of earnings levels. The mere existence of a co-worker non-solicitation term in an employment arrangement, even if the employer decides not to enforce the term and regardless of income level, is prohibited and an employer can be subject to significant penalties.
- The existing common law requirements to protect legitimate interests and for restraints to be reasonable will be codified in the Fair Work Act. The use of cascading provisions for post-employment restraints will result in them being unenforceable.
- No-poach and wage-fixing contracts, arrangements or understandings between entities will be considered to be cartel conduct under the Competition and Consumer Act with significant potential penalties and only limited exceptions available.
- The draft laws are subject to public consultation until 2 October 2026.
How did we get here?
Potential reform in this area has had a long genesis:
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March 2024 |
The Australian Competition & Consumer Commission (ACCC) and Treasury were asked by the Federal government for advice on the effects of non-compete clauses in employment contracts and whether there was any action warranted in response |
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April 2024 |
The Federal government released an issues paper, Non-competes and other restraints: understanding the impacts on jobs, business and productivity, for consultation on the use of post-employment restraints of trade in Australia. See our previous article here. Following that release, there was then a period of consultation with stakeholders on the reform options raised. |
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March 2025 |
As part of the 2025-26 budget, the Federal government announced it would introduce a ban on non-compete clauses for employees earning less than the high-income threshold in the Fair Work Act 2009 (Cth) (Fair Work Act). Complementary reforms were also announced to close “loopholes” in the Competition and Consumer Act 2010 (Cth) (Competition and Consumer Act) that could allow businesses to make anti-competitive agreements that cap wages or conditions, or prevent staff from being hired by competitors. See our previous article here. |
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July 2025 |
The Federal government released a consultation paper, Reform to non-compete clauses and other restraints on workers (Consultation Paper), seeking further views from stakeholders to inform the implementation of the announced bans. As part of that consultation, stakeholders were asked whether further reforms should be made to the use of non-compete clauses for high-income workers and the use of non-solicitation clauses, and whether changes were required to clarify the use of restraints on concurrent employment for part-time and casual workers. |
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7 September 2026 |
The Federal government released the Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 (Cth) (Bill), which proposes amendments to both the Fair Work Act and the Competition and Consumer Act. The proposed amendments are subject to public consultation until 2 October 2026. |
Proposed Fair Work Act reforms
The Bill, if enacted in its current form, will:
- ban non-compete clauses for employees whose earnings are equal to or less than the high income threshold, by providing those employees “… the right to be free of a non-compete term”; and
- ban the use of co-worker non-solicitation clauses for all employees, irrespective of income, again by providing employees “… a right to be free of a co-worker non-solicitation term”.
These provisions will be included in Part 2-9 of the Fair Work Act. In that part the terms “employee” and “employer” refer to a national system employee and national system employer respectively. As a result, these reforms will cover most Australian employers and employees, except for some state and local government employers and employees and private unincorporated businesses in Western Australia. This means that, effectively, post-employment restraint of trade terms for those employees will be regulated exclusively by the Fair Work Act, rather than the common law or the Restraints of Trade Act 1976 (NSW).
The Consultation Paper raised the issue of whether bans should extend to cover independent contractors, on the basis that many contractors perform work that resembles employment and the same common law principles apply to any such restrictions imposed. The Bill makes clear that the reforms will not apply to workers who are not employees.
Ban on non-compete terms for lower income employees
The Bill now bans the use of non-complete clauses for employees earning less than the high-income threshold, by providing those employees a general right to be free of that term.
In the Consultation Paper the Federal government’s preferred view was that the definition used by the US Federal Trade Commission could be adopted or adapted for an Australian context. This was on the basis that it appropriately covered the range of formats in which a non-compete may arise without going so far as to cover all restraints of trade in employment.
The US Federal Trade Commission defines a non-compete as being:
“A term or condition of employment that either prohibits a worker from, penalises a worker for, or functions to prevent a worker from:
a. Seeking or accepting work with a different person where such work would begin after the conclusion of the employment that includes the term or condition.
b. Operating a business after the conclusion of the employment that includes the term or condition.
[The] term or condition of employment includes, but is not limited to, a contractual term or workplace policy, whether written or oral.”
The Bill adopts a slightly different definition of a non-compete term being:
“… a term or condition of employment that restricts, prohibits or prevents the employee from, or adversely affects the employee for, seeking to:
a. be involved in any business or undertaking subsequent to the employee’s employment; or
b. commence subsequent employment.”
The Explanatory Memorandum accompanying the Bill provides the following examples of when a term will come within that definition:
- prohibiting an employee from seeking employment with a competing business located a certain distance from the employer’s office;
- preventing an employee from starting a business in the same industry for a specified period;
- a term that restricts an employee from leveraging their specialist skills and expertise and restricts their opportunities to work in their profession. The example provided is an employee who specialises in managing key accounts for a telecommunications provider and is prevented from working for another business that services the same major customers; and
- terms which require an employee to pay their employer a significant amount out-of-pocket, repay bonuses earnt during their employment, and deny the employee a severance package if they commence employment with a competing business.
The last point has the potential to cover what represents a common feature in incentive arrangements, that an employee ceasing employment in defined circumstances will either forfeit a benefit (through malus provisions), and in some cases, may be required to pay back a benefit already paid (through clawback provisions).
The Bill seeks to exclude certain clauses from being considered a non-compete, including:
- terms that restrict, prohibit or prevent an employee from using or disclosing confidential information that has come to their knowledge or into their possession by reason of the employee having been employed – this should allow appropriately drafted and targeted confidentiality agreements and non-disclosure agreements to continue to operate unaffected by these reforms. However, the Explanatory Memorandum states that:
“… a term designed to protect an employer’s confidential information that is so broad as to prevent an employee commencing employment with another employer will constitute a non-compete term. This includes terms which cover any information learnt about the employer’s industry, or publicly available information”;
- arrangements that provide for additional monetary remuneration, or employment non-financial benefits, to encourage employee retention – the Explanatory Memorandum refers to examples such as deferring bonus payments or option grants until after probation is completed or offering an enhanced parental leave entitlement after an employee has completed a minimum service period; or
- agreed notice periods that apply to employees, including requiring an employee to commence a period of “garden leave” provided they receive their full salary during that period.
In addition, a term will not be a “non-compete term” if the term or condition gives effect to, or is authorised or imposed by, a provision of a Commonwealth or State law. Examples provided in the Explanatory Memorandum refer to clauses that may highlight an employee’s obligations under the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) (regarding conflicts of interests arising from former clients) or the Defence Act 1903 (Cth) (which restrict certain former Australian defence staff from working with foreign militaries or governments). It remains to be seen how far that exclusion can stretch.
These reforms cover more than employee’s employment contract. They apply to “employment arrangements”, defined to include:
- a contract of employment;
- a deed between the employer and the employee;
- a workplace policy established by the employer that applies to the employee; and
- any other agreement or arrangement, whether written or unwritten, that regulates the relationship between the employer and employee.
It remains to be seen exactly what arrangements may be considered to come within that phrase, including whether incentive arrangements offered to an individual perhaps by a holding or parent company, and not their employing entity, will be included.
In the Consultation Paper the Federal government clearly stated it was not proposing changes to restraints of trade outside of employment including those which commonly apply in a sale of business context to protect goodwill. Importantly the Bill adopts that approach. In the Explanatory Memorandum, the Federal government has also expressed that:
“Shareholder agreements where employees purchase shares and enter arrangements with their company as an employee shareholder, are another example of arrangements where restraint of trade terms may be used outside the employment relationship. In this scenario, these employees will gain additional financial benefits as shareholders and may also have greater access to trade secrets and confidential information.”
The general right to be free of a non-compete term will apply to:
- an employee (other than a casual employee or pieceworker) only if the employee’s “annualised full-time equivalent earnings” exceed the high income threshold at the particular time; and
- all casual employees or pieceworkers.
The proposed reforms define “annualised full-time equivalent earnings” as being:
- for a full-time employee - the amount of earnings the employee would be entitled to if the employee were to work for 12 months; and
- for a part-time employee - the amount of earnings the employee would be entitled to if the employee were to work for a 12 months on a full-time basis at the same rate of earnings (i.e. their full-time equivalent salary).
The Bill confirms that earnings in this context will only be those amounts referred to in the existing section 332 of the Fair Work Act. That definition expressly excludes payments where the amount cannot be determined in advance and so at-risk commissions, incentive-based payments and bonuses paid to employees will not count. The exclusion of those types of payments made have unintended consequences though. For example, an individual may receive a relatively low salary (which is well below the high-income threshold) but be eligible to receive (and have historically received) very large cash-based bonuses or equity grants which would result in the employee’s total remuneration being in excess of the high-income threshold. Even though that employee may have access to highly confidential and valuable proprietary information of their employer and in any other circumstances be appropriately covered by a post-employment non-compete restriction (and other restrictions), they will now be subject to the non-compete term ban.
As part of the Consultation Paper, the question arose as to when the high-income should be applied to an employee’s earnings to determine whether a non-compete clause was banned. That threshold could be applied at differing times with very differing results and it may be appropriate for it to be re-applied at a later point in time.
The Bill provides that when entering into, establishing or varying an employment arrangement, employers must determine the employee’s annualised full-time equivalent earnings, to assess whether an employee’s earnings fall above or below the high income threshold and therefore whether the ban on noncompete terms applies to them.
If, at the time that an employer enters into a new employment contract or varies an existing employment contract, the employee’s annualised earnings are less than the high-income threshold, then any non-compete term will be of no effect and the employer may be subject to a civil penalty (see comments below). It is not clear what will constitute a variation for these purposes and, for example, whether an annual salary increase provided to an employee will be sufficient to bring an existing contract into the new regime.
If, at the time that an employer enters into a new employment contract or varies an existing employment contract, the employee’s annualised earnings are less than the high-income threshold, but the employee’s subsequent annualised earnings fall below the high-income threshold, then any existing non-compete term will also be of no effect but the employer will not be subject to a civil penalty in those circumstances.
The Consultation Paper provided that while the Federal government had not then determined whether there needed to be reforms for non-compete clauses for employees earning above the high-income threshold, it nonetheless committed to consulting on whether there was a need for any changes. At this stage, and despite support by various parties including trade unions and community legal centres, the proposed ban on non-compete terms has not been extended to high-income employees.
As covered in the Consultation Paper, in addition to making any non-compete clauses included in an employment contract of no effect, the government also considered whether there should also be civil and/or criminal penalties which apply, and if so, at what level.
The Bill provides that the mere existence of a non-compete term in an employment arrangement, even if the employer decides not to enforce the non-compete term, is prohibited. Where that prohibition is breached, employers can be subject to penalties of up to $218,400 for serious contraventions, or up to $21,840 in other cases. Incorporated employers may also be subject to penalties five times these maximum amounts.
Given the ban will be legislated in the Fair Work Act, the Fair Work Ombudsman typically has a role in enforcing compliance with those provisions designated as civil remedy provisions. However, in addition to the Fair Work Ombudsman, the Bill provides that a prospective employee, an employee, a union and a Fair Work Inspector will also have standing to commence proceedings for these civil penalties.
In addition, employers may also be penalised for enforcing, or threatening to enforce, a non-compete term when it has become unenforceable in particular circumstances. This would include, for example, where the non-compete term was validly included in the employment arrangement (when the employee’s earnings exceeded the high income threshold), but it later had no effect because their earnings have become equal to or less than the high income threshold. In that context “threatening to enforce” the term could range from verbal or written threats, through to commencing litigation and seeking an injunction.
From the Consultation Paper it was clear that the government had in mind that any such statutory exemptions should be very limited in scope, such as in relation to matters of national security or the integrity of core public functions. Consistent with that position, the Bill includes provisions to ensure that the bans do not prejudice national security, defence or government integrity, including through the making of Ministerial declarations.
Ban on co-worker non-solicitation terms for all employees
The Consultation Paper adopted the position that clauses of this type limited job mobility, and as a result, there was a concern that these clauses unfairly impaired the freedom of other workers who were not a party to the clause and who were therefore not compensated for the restriction, to move to their preferred and most productive job, reducing their bargaining power and potential wages. In this context the Federal government characterised these clauses as being anti-competitive.
The Bill now bans the use of co-worker non-solicitation clauses for all employees, by providing employees a general right to be free of those terms.
The Bill defines a co-worker non-solicitation term as being:
“… a term or condition of employment that restricts or prohibits an employee from recruiting, or attempting to recruit, a person … to:
a. be involved in any business or undertaking subsequent to the person’s employment; or
b. commence subsequent employment.”
The Bill provides a right for all national system employees to be free of co-worker non-solicitation terms, regardless of their earnings level. While the ban itself applies to national system employers and employees (see our comments above), importantly the reach of the ban is broader still.
The term ‘co-worker’ is not defined in the Bill or the Fair Work Act, but is intended to capture any person who currently or has previously carried out work in any capacity for the employee’s employer. As a result, the ban captures both existing and former co-workers of an employee, including contractors or subcontractors (and their employees), labour hire workers, volunteers and the like of that employee.
As with the non-compete term ban, the Bill provides that the mere existence of a co-workers non-solicitation term in an employment arrangement, even if the employer decides not to enforce the term and regardless of income level, is prohibited. Employers can be subject to penalties of up to $218,400 for serious contraventions, or up to $21,840 in other cases. Incorporated employers may also be subject to penalties five times these maximum amounts.
Codification of the common law
In the Consultation Paper, the Federal government expressed that even where a post-employment restraint could be lawfully imposed on an employee, it was considering further, potential reforms including correcting other perceived issues with the application of the common law restraint of trade doctrine and prohibiting “cascading” restraint clauses by requiring businesses to specify a single reasonable duration limit and geographic coverage that is required to protect the business’ legitimate interests.
In the Bill a post-employment restraint of trade term is defined to mean:
- a non-compete term;
- a co-worker non-solicitation term; and
- any other restraint of trade term that applies, or purports to apply, to an employee after the termination of the employee’s employment. This can include non-solicitation of client / customer restrictions and related non-dealing restrictions.
For all post-employment restraints of trade, the proposed reforms would mean they may only be included in an employment arrangement by an employer if necessary to protect a specified legitimate business interest. The new provisions seek to codify common law concepts that constitute legitimate business interests, with those recognised interests being:
- the use or disclosure of confidential information that has come to the knowledge or into possession of the employee by reason of the employee’s employment; or
- the use or disclosure of professional or personal relationships with customers, clients or professional networks that the employee has.
Clearly excluded is the extension through some case law that “maintaining a stable workforce” may also be a protectable interest.
If the permitted post-employment restraint of trade term is necessary to protect one of those recognised protectable interests, employers must then consider if the term is reasonable. Factors that may be used to assess reasonableness include (but are not limited to) whether the term goes no further than necessary to protect the relevant interest, or is reasonable between the parties involved.
Where an employer enters an employment arrangement containing a permitted post-employment restraint of trade term which does not satisfy these requirements, the entire term will have no effect and be unenforceable.
Ban on use of cascading clauses
The use of cascading clauses, with multiple geographical and/or duration restrictions, has previously developed in response to the limited options available to courts outside of NSW to sever what would otherwise be an unreasonable restraint and leaving potentially something reasonable to enforce.
The Bill provides that where an employer enters an employment arrangement containing a post-employment restraint of trade term drafted in a cascading manner, the entire term will have no effect and be unenforceable.
This requirement is designed to prevent employers drafting overly broad post-employment restraint of trade terms which create uncertainty for employees about the scope of their restraint and makes those employees vulnerable to the threat of litigation.
Transitional arrangements
It is proposed that the various reforms will have staggered commencement times.
Existing post-employment restraint of trade terms in employment arrangements entered into before commencement of the Bill will continue to apply unless the employment arrangement is varied. If the employment arrangement is varied (irrespective of whether the variation relates to the post-employment restraint of trade term), the post-employment restraint of trade term will apply subject to these new restrictions.
The civil penalty provisions for threatening to enforce, or enforcing, a prohibited post-employment restraint of trade term would commence relatively soon after commencement of the Bill. However, the civil penalty provisions for the prohibitions on non-compete terms and co-worker non-solicitation terms will only apply 6 months after the Bill commences.
Proposed Competition and Consumer Act reforms
The cartel conduct provisions in the Competition and Consumer Act prohibit contracts, arrangements or understandings reached between competitors to fix prices, rig bids, allocate customers or share markets. While the existing cartel prohibitions apply to conduct relating to the supply of goods or services, the current definition of services expressly excludes work under employment contracts.
Cartel agreements are prohibited by the Competition and Consumer Act per se - regardless of the impact they may have on competition.
The Bill proposes to amend the Competition and Consumer Act to extend the existing cartel framework to provisions of contracts between two or more parties that have the purpose, effect or likely effect of directly or indirectly:
- preventing one business from recruiting, soliciting or hiring another business’ current, former or future staff, or imposing notification or other requirements before a party can conduct or complete a process that results in the recruiting, soliciting or hiring of another party’s current, former or future staff (‘no-poach’ provision’); or
- fixing, maintaining, decreasing or controlling remuneration or other employment conditions (‘wage-fixing’ provision).
The Bill proposes that new section 45ADA would deem provisions of this nature as a new type of ‘cartel provisions.’
While breaches of the cartel prohibitions (including these new proposed prohibitions) attract both civil and criminal penalties, there are a number of existing and new exceptions (discussed below).
The new prohibitions will apply to arrangements concerning employees (regardless of their employment status) but not independent contractors. Unlike the Fair Work Act amendments, there is no monetary threshold for high income staff – the new cartel prohibitions would apply to no poach / wage fixing arrangements in respect of all staff, regardless of annualised earnings.
The prohibitions proposed by the Bill do not fit neatly within the standard framework for cartel conduct that has been adopted by most modern economies. The existing cartel prohibitions are only enlivened where the relevant contract, arrangement or understanding is made or given effect by competitors (known as the ‘competition’ condition). However, the Bill does not provide that relevant agreement or understanding must be arrived at by competitors in order to constitute a no poach or wage fixing provision.
The lack of any requirement that a no-poach or wage-fixing provision be between competitors raises questions as to the appropriateness of the prohibitions in the cartel regime, given that it does not meet this fundamental characteristic that has to date justified the imposition of criminal sanctions While it may be likely that businesses looking to enter into agreements including no poach or wage fixing provisions may be in competition for the acquisition of particular employment services (e.g. companies in different industries seeking to build their software engineering capabilities), this is not necessarily the case and consideration should be given to the inclusion of a competition condition.
The Bill extends the existing the joint venture exemption to no poach or wage fixing provisions where a party can establish that:
- the no-poach or wage-fixing provision is for the purposes of a joint venture and is reasonably necessary for undertaking the joint venture;
- the joint venture is for the production of goods, the supply of goods / services, or the acquisition of goods and services; and
- the joint venture is not carried on for the purpose of substantially lessening competition; and each staff member is given notice of and consents to the term.
Further, because the Competition and Consumer Act defines a ‘party’ to include that party’s related bodies corporate, it is not possible for agreements between two related bodies corporate to constitute an agreement between two parties for the purposes of the cartel prohibitions. Accordingly, related bodies corporate can make agreements containing no poach or wage fixing provisions, provided that the agreements only apply internally to the corporate group.
The Bill also recognises there are a number of other specific circumstances in which the public interest is better served by permitting specific forms of conduct that may otherwise constitute a no-poach or wage-fixing agreement. To that end, the Bill sets out a number of new specific exceptions including:
- conduct permitted under the Fair Work Act or State or Territory industrial law – the Bill provides that provisions relating to the remuneration, conditions of employment, hours of work or working conditions that are approved under these laws are to be disregarded when considering whether a provision is a cartel provision;
- Government wage setting – provided the only parties to the contract, arrangement or understanding containing the cartel provision are the Commonwealth, State, or Territory authorities;
- employee secondment and labour hire arrangements - provided that certain requirements are met, including that the provision only relates to secondments of staff between parties to the contract, arrangement or understanding or for the labour hire of staff from one party to another; the provision is reasonably necessary to enable the secondment of staff between the parties; and the secondment of staff between the parties is not for the purpose of substantially lessening competition;
- minimum labour standards - codes that impose requirements, such as government procurement frameworks, codes and standards that prescribe minimum labour standards that may require or encourage the making of wage-fixing provisions; and
- professional sporting leagues – provided the provision only relates to the selection of a person to be a player in a professional sporting league or the capping/controlling etc of remuneration, the provision is reasonably necessary to enable the selection of a person to be a player in a professional sporting league and any prescribed transparency obligations have been met.
The ACCC will be responsible for investigating breaches and enforcing the bans on no-poach and wage-fixing agreements under the Competition and Consumer Act. The ACCC and private parties will be able to take action in the Federal Court to secure penalties, injunctions, damages, and other remedial orders.
The changes to the Competition and Consumer Act will apply to the making of contracts, arrangements and understandings containing no-poach and wage-fixing agreements at or after the commencement time. Existing arrangements at the time of commencement will remain unaffected, although giving effect to such arrangements will constitute a contravention.
Next steps
If enacted, the prohibitions in the Fair Work Act and Competition and Consumer Act will represent significant departures from the current regulation of employment relations, with the potential for unforeseen circumstances.
If you would like to discuss these proposed reforms or need assistance in preparing your own submission by 2 October 2026, please feel free to reach out to us to discuss.
