The restraint of trade clause, a fixture of Australian employment contracts from the hair salon to the investment bank, is about to be rewritten for most of the workforce. On 7 September 2026, the federal government released draft legislation to ban non-compete clauses for workers earning less than the Fair Work Act’s high-income threshold, currently $190,100 a year.

Public consultation closed on 2 October. The government has said the reforms will operate prospectively and are intended to take effect in 2027, once legislation passes Parliament.

What is proposed

The core of the package is a prohibition on non-compete clauses, the terms that stop a departing employee from working for a competitor or starting a rival business for a set period, for employees at or below the high-income threshold. In announcing the draft, Assistant Minister for Productivity, Competition, Charities and Treasury Andrew Leigh and Employment and Workplace Relations Minister Amanda Rishworth said the government will also consult on:

  • banning co-worker non-solicitation clauses, which stop a departing employee from recruiting former colleagues
  • banning no-poach and wage-fixing arrangements between businesses
  • banning “cascading” restraint clauses, the ladder-style clauses that offer the court a menu of durations and areas to choose from
  • exemptions and safeguards to protect legitimate business interests.

The government has said businesses will still be able to protect genuine interests such as confidential information, intellectual property and client relationships.

The economic case

The policy grew out of the Treasury-led competition review. The government cites research from the e61 Institute finding that around one in five Australian workers is subject to a non-compete clause, and that a ban could lift the wages of affected workers by up to 4%, or about $2,500 a year for a typical worker. Ms Rishworth put the number of workers constrained by non-competes at more than three million, including childcare workers, construction workers and hairdressers.

Some employer groups have argued that restraints protect investment in training and client relationships, particularly for small professional practices. The final shape of the exemptions will determine how much of that concern is addressed.

How it changes the current law

Under the common law, a post-employment restraint is already presumed unenforceable unless the employer shows it protects a legitimate interest and goes no further than reasonably necessary. In practice, though, broad restraints are routinely included in contracts, and many employees comply without testing them. New South Wales adds a further layer: its Restraints of Trade Act 1976 lets courts read down an overly broad restraint instead of striking it out.

The proposed ban changes the starting point for most workers. Below the threshold, the question would no longer be whether a non-compete is reasonable, but whether it is allowed at all.

Who is not covered

Employees earning above the high-income threshold, which is indexed each year, would remain subject to the existing common-law tests. For senior executives, portfolio managers, partners in professional firms and top-performing sales staff, carefully drafted restraints are likely to remain part of the landscape. How remuneration is measured against the threshold, for example whether bonuses and equity count, will matter greatly for employees near the line. Employers should watch the final legislation closely on that point.

Restraints given on the sale of a business are a different category from employment restraints. Buyers and sellers should nonetheless watch the final drafting for any spillover, particularly where vendors stay on as employees after completion.

What employers should do now

  • Audit your templates. Identify which roles carry non-compete, non-solicitation and no-poach terms, and which employees sit below the threshold.
  • Strengthen alternative protections. Confidentiality obligations, IP assignment clauses, garden leave provisions and properly targeted client non-solicitation clauses are likely to carry more weight once non-competes are off the table for most staff.
  • Review agreements with other businesses. Informal understandings not to hire each other’s staff, common in franchise networks and among contractors, are a specific target of the reforms.
  • Plan for contract renewals. Because the ban is intended to apply prospectively, the timing of new contracts and variations will matter once commencement dates are confirmed.

The detail will change as Treasury works through submissions, but the direction is clear. For most Australian employers, the non-compete clause is living on borrowed time.

This article is general information only and is not legal advice. Readers should seek advice specific to their circumstances.