The budget this week signalled an incoming ban on non-compete clauses for low and middle-income workers. Here’s what you need to know.
What is changing?
On 25 March 2025, the Federal Government announced their 2025-26 budget, including their intention to ban non-compete clauses for low and middle-income workers.
‘Non-compete’ or ‘restraint’ clauses are often included in employment contracts as a means of restraining where employees can work after the termination of their employment. The intention is to protect the employer’s legitimate business interests by preventing an employee from moving to a competitor for a specific period or time or within a certain geographic area of the business.
Following consultation and passage of legislation, these clauses will be banned, with the reforms expected to take effect from 2027, operating prospectively to give businesses and workers time to adjust.
There are suggestions that non-solicitation clauses may also be affected in upcoming legislative changes.
Why has it changed?
The Federal Government stated that the ban on non-compete clauses will “boost wages” and “build a stronger economy” by increasing worker mobility, allowing them to move for higher wages, or to start their own business. This, they believe, will spur competition. In short, the Government stated that “Workers should not be handcuffed to their current job when there are better opportunities available for them”.
Does this change affect me?
If you or your employees earn under the high-income threshold, you will be affected by these changes. They cover low and middle-income workers, specifically those earning under the high-income threshold (which is currently $175,000 per annum and is revised on 1 July each year).
What action do employers need to take?
These changes require amendments to the Fair Work Act 2009 (Cth) to be passed through Parliament and are not anticipated to be in effect until 2027. Nevertheless, employers must start preparing now. Once in effect, these changes could have a detrimental impact on employers if employees choose to move to competitors or start up their own competitive businesses.
In anticipation of these changes, we recommend that employers:
- seek advice on whether their current non-compete clauses and restraints are reasonable and appropriate against their employees. Although the legislation will be applied prospectively, employers should consider whether they wish to harmonise terms across their employee base
- conduct regular reviews of their employment agreements to ensure compliance with this changing landscape; and
- watch this space for further updates.
If you have any questions on the changes or would like to discuss how you can best protect your business, please contact us. We would love to help.
