Removing the shackles of non-compete clauses: a review of the proposed Australian bans

Can your current or former employer prevent you working for 'the competition'? The newly released 2025/26 Federal Budget says no.

Proposed Ban on Non-Compete Clauses

The Labor government has proposed plans to ban non-compete clauses in employment contracts for low- and middle-income employees earning less than the high-income threshold, currently set at $175,000 per annum. This ban is set to take effect from 2027 and, according to a joint media release from The Hon Jim Chalmers MP, Senator The Hon Murray Watt, and The Hon Dr Andrew Leigh MP, is part of a broader aim of "backing workers, boosting wages, and building a stronger economy."

Comparison to the US Approach

The proposed ban follows the US's recent attempt to outlaw non-compete clauses. The Federal Trade Commission (FTC) introduced bans preventing employers from enforcing non-compete clauses with workers, including senior executives earning over US$151,164 and holding policy-making positions. However, the FTC allowed existing non-compete agreements for senior executives to remain in place. Despite these efforts, under the Trump administration, the US bans face significant obstacles. Originally set to commence in September 2024, the bans were stalled by federal court injunctions. Additionally, the removal of Jennifer Abruzzo, the former General Counsel of the National Labor Relations Board and a strong advocate for the ban, further diminished their prospects. As a result, the U.S. now has a patchwork of state-level restrictions, leading to uncertainty and inconsistency.

Will Australia's Approach Be More Successful?

Unlike the U.S. ban, Australia's proposed restrictions apply only to employees earning below the high-income threshold, effectively excluding executives and senior staff. This targeted approach may increase the likelihood of successful implementation.

Existing Approach to Restraints of Trade

Currently, restraint of trade clauses are governed by common law in most Australian states. The case Just Group Ltd v Peck (2016) 344 ALR 162 illustrates judicial reluctance toward overly restrictive clauses. Just Group sought to prevent its former CFO, Nicole Peck, from accepting a similar position with a competitor. The restriction, which varied between 12 to 24 months depending on enforceability, was ultimately found to exceed what was reasonably necessary to protect Just Group's legitimate business interests. The proposed bans aim to remove ambiguity in cases involving employees below the high-income threshold. However, they would not have changed the outcome in Just Group Ltd v Peck, as Ms. Peck's income significantly exceeded the threshold.

Effects on Litigation

The proposed bans are unlikely to significantly impact litigation rates concerning restraint of trade clauses in Australia. A research project funded by the Australian Research Council Discovery Grant found that solicitors handle very few litigated restraint of trade cases'€”typically between five and ten per year, with some handling even fewer. Given the high costs associated with such proceedings (ranging from $50,000 to $150,000, according to an April 2024 Australian Government issue paper), disputes over non-compete clauses tend to involve employees earning above $175,000. Since the proposed ban does not extend to senior or executive staff, litigation rates are expected to remain largely unchanged.

Confidentiality Considerations

While the government's issue paper considered non-disclosure clauses, it is important to distinguish the proposed ban on non-competes from confidentiality obligations, which remain in place. Section 183 of the Corporations Act 2001 (Cth) continues to prohibit individuals who obtain information as directors, officers, or employees from improperly using it for personal gain, the benefit of another, or to the detriment of the company. This duty extends beyond the period of employment. Please reach out to our team here'  if you have any questions regarding these changes, and how they may affect you or your business.

By Zahara Bedewi-Hayes