As a business owner, you’ve likely relied on non-compete clauses to protect your client base, confidential information, or intellectual property—particularly when key team members exit your business. But a sweeping change is on the horizon, and it could completely upend how you manage post-employment risk.
The Australian Government, through its 2025 Federal Budget, has announced its intention to ban non-compete clauses in Australia for employees earning under $175,000. Set to take effect from 2027, this reform is designed to boost competition, lift wages, and unlock job mobility—but for employers, it introduces a fresh set of risks that cannot be ignored.
In this blog, we’ll unpack the proposed ban, what it means for business owners, how it compares to international trends, and—most importantly—how you can protect your business while navigating this legislative change.
What Are Non-Compete Clauses and Why Do They Matter?
Non-compete clauses, sometimes called restraint of trade provisions, are contractual terms that restrict an employee from working for a competitor or starting a competing business for a certain period after leaving their job.
They’re often used to protect:
- Client relationships
- Commercial-in-confidence information
- Trade secrets or IP
- Business goodwill
- Workforce stability (i.e. preventing poaching of team members)
While these clauses have long been standard in employment contracts, they are notoriously hard to enforce in Australian courts. Judges typically require that any restrictions be reasonable in scope, duration, and geography, and that they serve to protect a legitimate business interest.
Even so, their very presence in a contract can act as a deterrent—stopping employees from jumping ship or dissuading competitors from poaching.
What’s Changing? A Summary of the Federal Government’s Proposal
Under the proposed reform:
- Non-compete clauses will be banned entirely for employees earning less than $175,000 per year.
- This threshold will be indexed to wages over time.
- The ban will apply regardless of the industry, impacting sectors from healthcare and hospitality to finance and IT.
- The change is set to come into effect from 2027, giving businesses a two-year transition period.
- There will be consultation on whether non-solicitation clauses (which prevent former employees from contacting clients or colleagues) should also be restricted.
The Treasurer, Jim Chalmers, has labelled the reform as a way to “boost wages and productivity,” suggesting that workers are being unfairly locked out of new opportunities due to overreaching contract terms.
How Widespread Are Non-Compete Clauses in Australia?
According to recent data from the Australian Bureau of Statistics, around 21% of businesses use non-compete clauses. This figure jumps significantly among medium and large businesses.
From apprentices in trades to IT consultants and marketing managers, the use of these clauses has crept into roles where their necessity is increasingly questioned. Critics argue that their misuse suppresses innovation, blocks healthy competition, and creates unnecessary legal grey areas.
But for many business owners, particularly those in service-based or IP-heavy industries, non-compete clauses form a critical part of their risk mitigation strategy.
Why Is the Government Banning Them?
The move reflects a growing global shift in how governments view non-compete clauses. The U.S. Federal Trade Commission has proposed similar reforms, and research internationally shows that banning these clauses can increase job mobility, stimulate new business creation, and lift average wages.
The Productivity Commission has argued that removing non-compete clauses in Australia could:
- Increase productivity by $5 billion annually
- Lead to wage increases of up to 4%
- Improve the competitiveness of small businesses trying to attract talent
From a policy perspective, the ban aims to remove barriers to movement and allow skills to flow more freely across industries.
What Business Owners Need to Do Now
While the ban won’t come into effect until 2027, waiting until the legislation passes would be a missed opportunity to future-proof your business. Here’s how you can start preparing now:
1. Review Existing Employment Contracts
Audit your employment contracts—especially for employees earning under $175,000—to identify which agreements contain non-compete clauses.
If your protections rely heavily on these clauses, you may need to explore alternate strategies to secure your business interests.
2. Strengthen Non-Disclosure and Confidentiality Protections
Non-compete clauses in Australia may be on the way out, but confidentiality clauses and non-disclosure agreements (NDAs) are not. These are critical for protecting sensitive information and should be clearly drafted, comprehensive, and enforceable.
3. Use Non-Solicitation Clauses—With Caution
Non-solicitation clauses (which prevent former employees from poaching clients or staff) are still permitted. However, the government has flagged potential future reforms in this area. Make sure these clauses are specific, reasonable, and justifiable.
4. Shift the Focus to Retention, Not Restriction
This reform serves as a reminder that the best defence against employee exits is a great workplace. Invest in:
- Culture and leadership development
- Transparent pay and progression pathways
- Flexible work options
- Recognition and wellbeing initiatives
You can’t stop someone from leaving—but you can give them plenty of reasons to stay.
Are There Any Exceptions?
Currently, the proposal makes no allowances for non-compete clauses below the $175,000 threshold. However, it’s likely that businesses in highly regulated or IP-sensitive industries (e.g. defence, pharmaceuticals, finance) may lobby for tailored exceptions.
Whether those carve-outs will materialise remains to be seen, but as it stands, this is shaping up to be a broad and sweeping change.
What Happens to Existing Clauses?
If the reform proceeds as planned, existing non-compete clauses for affected workers will become unenforceable from the start date in 2027. Employers may be required to issue updated contract terms, particularly where multiple restrictive covenants are bundled together.
This creates a key compliance risk. Failing to revise your contracts could expose your business to legal challenges, Fair Work complaints, or reputational damage.
A Strategic Shift, Not Just a Legal One
The impending ban on non-compete clauses in Australia signals more than just a legal tweak—it’s a shift in how we think about employment relationships, business risk, and talent retention.
For business owners, this is a moment to reassess, recalibrate, and rethink how you safeguard what matters most. The businesses that embrace this change, rather than resist it, will be best placed to succeed in the new employment landscape.
Let’s Future-Proof Your Business
At DreamStoneHR, we understand the balancing act between protecting your business and supporting a thriving, engaged workforce.
If you’re unsure how these changes might impact your contracts or want to explore practical alternatives to non-compete clauses, get in touch with us. We can help you navigate the changes and put the right protections in place—without overcomplicating things.
👉 Contact us today to start the conversation.
