Australia: Non-Compete Reforms - What Employers Need to Know

What you need to know

1. If enacted, the Bill will ban non-compete clauses for employees earning at or below the high-income threshold (currently $190,100 but indexed annually), prohibit clauses that prevent departing employees from recruiting former colleagues, and remove the ability to draft restraints with cascading or fallback positions. 
2. While the proposed reforms represent a meaningful shift in how Australian employers can use post-employment restraints, if thought through properly, there will still be options available for employers to protect their commercial interests.  For example, this could include longer notice periods and the terms of incentive arrangements, including deferral periods and the definition of “bad leaver” in such documentation. 
3. Most restraints in commercial transactions are unaffected. Non-compete clauses agreed in the context of a business or share sale, or included in shareholder agreements, fall outside the scope of the proposed ban and will continue to be assessed under existing legal principles. However, no-poach, non-solicitation and wage-fixing agreements will be treated differently, and may constitute cartel conduct, so will need to be carefully considered.

Overview

The Australian Government has released exposure draft legislation proposing to ban non-compete clauses for Australian workers earning at or below the Fair Work Act high income threshold. The Bill, titled the Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 (Bill), also introduces a ban on co-worker non-solicitation clauses, prohibits cascading restraints, and extends competition law to cover no-poach and wage-fixing arrangements between employers. Submissions on the exposure draft can be made until 2 October 2026.

The proposed changes present a significant departure from the long-standing position on post-employment restraints in corporate Australia. For employers, the proposed reforms will require a careful review of existing contract terms, templates and practices well before the new regime commences.

Summary of key changes

Non-compete terms banned for employees below the threshold

An employer will contravene a civil penalty provision for including non-compete terms in employment arrangements for employees who earn at or below the high-income threshold (currently $190,100 but indexed on an annual basis). The definition is broad and captures terms that directly or indirectly restrict post-employment competitive activity, including financial penalties for joining a competitor or forfeiture of bonuses. 

‘Employment arrangement’ is defined to include contracts of employment, deeds, workplace policies and any other arrangements, whether written or unwritten, that may regulate the employment relationship. It is unclear whether as currently drafted this extends to cover separate arrangements which contain restraint obligations.  On the current drafting of the Bill, it appears this definition will extend to non-competition restraints in employee incentive schemes if those incentives are provided in the context of an employee’s employment. 

The draft prohibition makes clear that it does not extend to:

• terms that restrict, prohibit or prevent an employee from using or disclosing confidential information of which the employee has gained knowledge or come into possession of during their employment;
• remuneration arrangements to encourage employee retention, whether monetary or non-monetary; 
• agreed notice periods; and  
• clauses requiring that an employee take garden leave on full pay.

Codification of the common law test for restraints 

For employees above the high-income threshold, non-compete terms remain available, but the Bill clarifies the conditions of enforceability.

Permitted post-employment restraint of trade terms included in an employment arrangement must first be necessary to protect against a specified legitimate business interest, being either the use or disclosure of confidential information that has come to the knowledge or possession of the employee by reason of their employment, or the use or disclosure of professional or personal relationships with customers, clients or professional networks that the employee has gained by reason of their employment. Maintaining a stable workforce is expressly excluded — overturning Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 where maintaining a stable workforce was accepted as a legitimate business interest. The restraint must also be reasonable and go no further than necessary to protect the legitimate business interests of the employer. 

The Bill outlines that where a non-compete term was included at a time when the employee's earnings exceeded the high-income threshold, but those earnings subsequently fall to, at or below the high-income threshold, the non-compete term will cease to have effect for as long as the employee's earnings remain at or below the high-income threshold.  In that scenario, the employer will not be subject to civil penalties for the mere presence of the clause in the employment arrangement, but seeking to enforce the clause in these circumstances will attract civil penalties.

Exclusion from prohibition on non-compete terms 

The draft Bill makes clear that the prohibitions on non-competition restraints are confined to the employment relationship and do not affect non-compete restraints included in other commercial arrangements such as agreements in a business share or asset sale context or shareholder agreements.  On current drafting, non-compete restraints agreed as part of a sale and purchase agreement or included in a shareholder’s deed are not subject to the new civil penalty regime and will continue to be assessed under existing legal principles (e.g. in a sale agreement context, where the restraint is solely for the protection of the purchaser in respect of the goodwill of the business). These existing principles will not apply to no-poach and wage-fixing agreements, which will be prohibited (as discussed below) unless a specific exception applies. 

In our view, this appears to be an appropriate stance, given that without these provisions, it is hard to see what value a buyer would receive from buying a business where the seller could effectively become a competitor immediately post completion.

Prohibition on co-worker non-solicitation terms for all employees

The Bill proposes an outright ban on co-worker non-solicitation clauses for all employees, regardless of income. An employer will contravene this provision if, at the time of a new or varied employment arrangement takes effect, it includes a co-worker non-solicitation term. The mere existence of a co-worker non-solicitation term in an employment arrangement will contravene this provision. 

The Bill defines a co-worker non-solicitation term as a term or condition of employment that restricts or prohibits an employee from recruiting or attempting to recruit a co-worker or former co-worker to commence employment or be involved in any business or undertaking subsequent to the co-worker's employment.

The term "co-worker" refers to any person who currently or has previously carried out work in any capacity for the employee's employer. This extends beyond national system employees to include contractors or subcontractors, employees of a contractor or subcontractor, employees of a labour hire employer who have been assigned to work in the host's business, outworkers, apprentices or trainees, work-experience students, and volunteers. It is not necessary for the departing employee to have had a direct working relationship with the former co-worker, so long as the co-worker is employed or engaged by the same entity. 

Cascading restraint clauses prohibited

The Bill bans the widespread practice of drafting restraints with multiple alternative geographic or temporal limits (e.g. “25km / 15km / 5km” or “2 years / 1 year / 6 months”).  Compared to the current approach where the courts can sever unreasonable restraints in a cascading clause, this new requirement will ensure that from the outset, employers will only be able to include post-employment restraint of trade terms that have single temporal or geographical limitations (i.e. one temporal and geographical period). The Bill provides that if a restraint is drafted in this cascading manner, the entire term is void (i.e. severance is not available). Similarly, the draft legislation overrides both the common law test and the Restraints of Trade Act 1976 (NSW) for employees, replacing them with an exclusive statutory framework under the Fair Work Act. Under the proposed framework it appears that any cascading restraints or restraints that are overly broad or imprecisely drafted cannot be severed or read down by a Court to render them enforceable and, rather, such restraints will be rendered void in their entirety. 

The current guidance makes clear that the prohibition on cascading restraints does not apply to terms which include temporal or geographical restrictions that are incidentally overlapping. For example, where an employee agrees not to work for a competitor operating within 5km of the employer's Melbourne office, 5km of the employer's Sydney office, or 5km of the employer's Perth office, those terms remain valid and enforceable even if the specified areas have some overlap.  On the Bill’s current drafting, it may also be possible to include multiple geographic or temporal restraints so long as these are clear and distinct clauses. 

Competition and Consumer Act 2010 amendments — no-poach and wage-fixing conduct

The Bill also amends the CCA to prohibit no-poach and wage-fixing agreements between businesses, treating such arrangements as cartel conduct subject to civil and criminal penalties. Targeted exemptions exist for joint ventures, secondments, labour hire and professional sporting leagues. Most relevantly, no-poach and wage-fixing agreements will not benefit from the goodwill exception in a sale agreement context, and it will be a prohibition to “give effect” to such agreements entered into prior to the legislation commencing (i.e., this change will mean that no-poach agreements that are on foot will become unenforceable). This is a potentially material change to current market practice and will be the subject of a more detailed competition law update.

Notably, the draft legislation carves out conduct that is permitted or approved under workplace laws from the new no-poach and wage-fixing prohibitions, including multi-employer bargaining, protected industrial action and agreement alignment measures such as common expiry dates.

When will these changes take effect?

The Bill will commence on the first 1 January, 1 April, 1 July or 1 October to occur after it receives Royal Assent. As exposure draft legislation, it must still proceed through the usual parliamentary process before receiving Royal Assent. Following commencement, a six-month transitional period will apply before the civil penalty provisions for the new prohibitions will only apply to employment arrangements entered into or established on or after commencement. Existing restraint of trade terms in pre-commencement arrangements is subsequently varied in any respect, whether or not the variation relates to the restraint itself, the new provisions will apply to the arrangement as a whole. In that event, any post-employment restraint of trade term will only have effect to the extent it would have been permissible has the arrangement been entered into after commencement. Accordingly, employers should exercise real caution before making amendments to existing contracts during the transition period. Even an unrelated variation, such as a salary adjustment, could be sufficient to trigger the application of the new regime to an existing restraint clause.

What does this mean for employers?

Despite the Government’s claims the proposed reforms will lift wages for affected workers by approximately $2,500 per year, there is a real prospect that large corporates and well-resourced employers will be the primary beneficiaries of these reforms. Companies with strong brands, deep talent pools and significant financial resources will be best positioned to absorb and attract departing employees. Smaller businesses and start-ups, which often rely on non-competes as the only practical mechanism to protect investment in key personnel, may be less able to compete for talent in such an environment. This could result in talent concentration in large businesses, which is the opposite of the competitive labour market that the Government intends to foster. 

With the current proposed co-worker non-solicitation clauses banned and non-competes unavailable for most of the workforce, employers will need to look to other contractual mechanisms in order to protect their interests. While the Bill is likely to change as it moves through parliament, we outline some of the potential alternative options for employers to consider below: 

• Non-employment documentation: The current drafting of the Bill makes clear that the prohibition on non-competition restraints only applies to “employment arrangements”.  This definition is yet to be formally tested, and it remains to be seen how far it will extend. Employers may consider getting creative in including such restraints in separate documentation such as shareholder or equity participation agreements, loan agreements or post-employment deeds. 
• Extension of notice periods: In the current drafting, longer notice periods and more extensive gardening leave arrangements are explicitly carved out from the definition of a non-compete term, and their use is therefore likely to increase significantly. 
• Deferred compensation structures: Employers may also consider deferred compensation structures, including long-term incentive plans with extended vesting periods, clawback mechanisms and service conditions, as a means of retaining key staff and protecting confidential information. These arrangements can include "bad leaver" provisions that result in forfeiture of unvested entitlements where an employee breaches a restraint obligation, providing a strong financial incentive for compliance.     
• Global locations: The outright ban on co-worker non-solicitation will require employers to fundamentally reconsider their approach to protecting team stability, particularly in sectors where team lifts are common (such as financial services). This ban may lead employers in certain industries to turn to investment in jurisdictions with stronger protections (such as Singapore and Hong Kong), and an increase in the use of deferred compensation structures as alternative protective mechanisms (which may reduce upfront remuneration for employees).

Consultation on the proposed changes in the Bill is open until 2 October 2026. 

In the meantime, employers should consider how the reforms may affect their existing employment arrangements, template contracts and broader talent retention strategies. We would be happy to discuss the proposed changes in the Bill and what this may mean for your business, including to collaborate on any consultation.