Labor to abolish non-compete clauses from 2027

On 25 March 2025, the Albanese Labor government announced in its 2025-26 Budget (Budget), that it intended to abolish non-compete clauses in employment contracts for approximately three (3) million workers from 2027.^[1]

So what exactly is a non-compete clause?

Non-compete clauses attempt to prevent workers from transitioning to a competing employer, or from starting a competing business, within a specific geographic location for a certain period of time after the termination of their employment.^[2]

These clauses form part of what is widely referred to as a restraint of trade, operating to protect businesses’ intellectual property, confidential information as well as their client base.  Restraint of trade clauses usually contain three (3) parts – non-employment by a competitor, non-solicitation of employees and non-solicitation of clients.  The general position is that an employer cannot stop and employee from going to work for a competitor unless the restraint is necessary for the employer to protect their ‘legitimate business interests’.  Therefore, protecting the employers ‘legitimate interests’ is not necessarily straightforward.

For further information on the restraint of trade doctrine, see our webpage on restraint of trade.

What are the proposed changes to ban non-compete clauses?

• In line with the Budget, the Albanese government has pledged to ban non-compete clauses for ‘most workers’.
• As stated on page 24 of Budget Paper No.1, the ban on non-compete clauses will apply to workers earning less than the high-income threshold in the Fair Work Act 2009 (Cth) (as at 27 March 2025 – $175,000).
• The government has also expressed its intention to:
• “close loopholes in competition law that currently allow businesses to use ”no-poach” agreements to block staff from being hired by competitors.”
• The ban is projected to take effect from 2027 with a notice period for businesses and workers to make adjustments.

What is yet to be decided?

• The Labor government has not yet finalised the full scope of the changes and whether they will affect other aspects of restraint of trade clauses. The government has indicated their intention to:

“consult on policy details, including exemptions, penalties, and transition arrangements and will also consider and consult further on non-solicitation clauses for clients and co-workers and non-compete clauses for high-income workers.”

• There is no information available about the interaction between the proposed amendments and NSW state law (Restraints of Trade Act 1976).

How will this affect your business?

• While only twenty (20) percent (%) of businesses utilise non-compete clauses,^[3] these changes will nevertheless have a significant impact on over three (3) million workers and their associated employers.
• The abolishment of non-compete clauses may threaten key protections for businesses’ intellectual property, investment in staff training and their client base.

Links and further references

Legislation

ABS Non-Compete Clause Data

Budget Paper No.1

Competition Review 2023

Cases

Fair Work Act 2009 (Cth)

Restraint of Trade Act 1976 (NSW)

Further information about restraint of trade clauses in employment contracts

If you need legal advice on restraint of trade or non-compete clauses to protect your business, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Budget Strategy and Outlook 2025-2026: Budget Paper No.1. <https://budget.gov.au/content/bp1/download/bp1_2025-26.pdf>.

[2] Ibid.

[3]  Australian Bureau of Statistics, Restraint Clauses, Australia, 2023 (Catalogue No 6306.0, 21 February 2024)  <https://www.abs.gov.au/articles/restraint-clauses-australia-2023#use-of-non-compete-clauses>.

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