Impending changes to the law will make it harder for employers to impose non-compete clauses in employment contracts. But why, asks industrial lawyer RICHARD CALVER.

Employers trying to stop employees from jumping ship and sailing with a competitor is going to get much harder.

Like the time a boat carrying red paint crashed into a boat carrying blue paint many employers will be marooned. But employees will be much freer to cut the mooring line.

The federal government has published an exposure draft Bill entitled the Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 and is seeking comment on its terms by October 2.

The title is slightly misleading because a main part of the Bill would prohibit businesses from making or giving effect to no-poach agreements and wage-fixing agreements via amendments to the Competition and Consumer legislation.

Rather than go into that weed patch, I want to focus on the employment law changes that would arise if the Bill became law. Just the main points, remembering this isn’t legal advice. 

The primary target is non-compete clauses in employment contracts. They will be prohibited for employees who earn $190,100 a year or below.

This is known as the “high income threshold” and is indexed every year. The prohibition would also apply to casual employees and pieceworkers no matter their income.

Non-competes are clauses that limit the ability of employees to use confidential information obtained at work, to be employed by a competitor or to poach clients or staff from a previous employer. Encompassed also are restrictions on employees that would prevent their involvement in a business after their employment ends, defined by geographic area or time period or both.

They are in widespread use. I have had a client who was very much constrained in her career choices after her employment ended because of a provision that prevented her from obtaining employment with a competing business as her area of expertise was narrow with few firms requiring her niche skills.

In turn, I have been asked to draft these types of clauses to protect employers. 

The government in publishing the Bill for comment said that non-competes affect more than three million Australian workers and can suppress wages, limit labour mobility and adversely affect productivity.

Some employer groups disagree. They say that there is not a demonstrable need for the changes, especially as the courts currently assess the enforceability of non-competes or “restraint” provisions for reasonableness.

Their point is that the law already only enables these clauses to be enforced when they are reasonable and necessary to protect the legitimate interest of an employer.

This test has led to many restraint provisions being very widely drafted, so-called cascading provisions. The hope is that at least one geographic or time period limitation, amongst a number, is regarded as reasonable. These provisions would also be prohibited.

But those not specifically prohibited must be necessary to protect a legitimate interest, be reasonable and not be drafted in a cascading manner to remain enforceable; these tests would apply, for example, in the case of those earning more than the high-income threshold. 

The changes will apply to new employment contracts and other arrangements that are made, or existing ones that are varied following the commencement of the Bill relating to non-competes.

The amendments insert civil penalty provisions that prohibit an employer from entering into a contract of employment or other workplace arrangement (even a workplace policy) that contains a prohibited post-employment restraint of trade term.

A civil penalty may also apply where an employer enforces or threatens to enforce a non-compete term where that term is, or has become, unenforceable. 

If the Bill passes, it will create a lot of work for employment lawyers because employers should review all employment contracts, policies and other workplace documents to identify prohibited and permitted provisions. Got to keep the ship steady.

Its yet another area of workplace law where the complexities of compliance are likely to outweigh any productivity benefits, especially in the short term. 

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