Proposed Non-Compete Ban: What Employers Need to Know

The Federal Government has released an exposure draft of the Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 (Bill), proposing significant reforms to restrict the use of non-compete clauses for Australian workers earning at or below the Fair Work Act high income threshold.

The Bill bans coworker non-solicitation clauses, prohibits cascading restraint provisions and expands the scope of competition law to capture no-poach and wage-fixing arrangements between employers. The proposed reforms represent a significant shift from the long-established approach to post-employment restraints in Australia. Employers will need to undertake a comprehensive review of their existing employment contracts, precedents and workplace practices in anticipation of the new regime.

What employers need to know

1. If enacted, the Bill will prohibit non-compete clauses for employees earning at or below the high-income threshold (currently $190,100, indexed annually), ban provisions restricting departing employees from soliciting former colleagues, and eliminate the use of cascading or fallback restraint clauses.
2. While the proposed reforms would substantially limit the use of post-employment restraints, they do not remove all options for protecting business interests. Employers may instead look at mechanisms such as extended notice periods and incentive arrangements, including deferred vesting and carefully drafted “bad leaver” provisions.
3. The proposed reforms will not affect most restraints in commercial transactions. Non-compete clauses associated with business or share sales and shareholder agreements will remain subject to existing legal principles. However, no-poach, non-solicitation and wage-fixing arrangements may be treated as cartel conduct under competition law and should be carefully reviewed.

Key Changes

Ban on non-compete terms for employees below the high-income threshold

The Bill proposes a broad prohibition on non-compete provisions in employment arrangements involving employees whose earnings do not exceed the high-income threshold (currently $190,100, subject to annual indexation). An employer that includes such a provision may be exposed to civil penalties. The ban extends to traditional restraint clauses and captures any term that directly or indirectly restricts an employee’s ability to engage in competitive activity following the cessation of employment, including provisions imposing financial consequences, such as forfeiture of incentive entitlements or repayment obligations triggered by employment with a competitor.

“Employment arrangement” is broadly defined and it includes contracts of employment, deeds, workplace policies, and any other arrangements, whether written or unwritten, that regulates the employment relationship. The current drafting leaves some uncertainty as to whether standalone agreements containing restraints fall within the scope of the definition.

However, on its face, the Bill does appear capable of extending to non-compete provisions contained in employee incentive plans where those arrangements are connected to or arise from the employment relationship.

The draft Bill does not apply to:

1. terms that protect an employer’s confidential information, including restrictions on the use or disclosure of information an employee has obtained during their employment;
2. remuneration incentive arrangements to encourage employee retention whether monetary or non-monetary;
3. agreed notice period obligations; and
4. garden leave provisions requiring employees to serve out all or part their notice period on full pay.

Statutory codification of the common law restraint test

 For higher-income employees, non-compete provisions will continue to be permitted. The Bill, however, provides greater legislative guidance regarding when such restraints will be regarded as reasonable and enforceable.

To be enforceable, a post-employment restraint contained in an employment arrangement must be reasonably necessary to protect a prescribed legitimate business interest. Under the Bill, those interests are limited to protecting confidential information acquired by an employee in the course of their employment and safeguarding customer, client and professional relationships developed through the employee’s employment.

The restraint must also be reasonable and go no further than necessary to protect the legitimate business interests of the employer.

Exceptions to the ban on non-compete terms

The draft Bill makes it clear that the ban on non-competition restraints arising from an employment arrangement are confined to the employment relationship and not extend to non-compete obligations in other commercial arrangements, such as business sale agreements, share sale agreements or shareholder agreements.

Accordingly, non-compete restraints given in connection with the sale of a business or an equity interest will remain outside the scope of the new civil penalty regime and continue to be assessed under established common law principles.

In particular, courts have long recognised that restraints may be enforceable where they are reasonably necessary to protect the goodwill and value acquired by a purchaser as part of a transaction. This position does not extend to all transaction-related restrictions. Under the proposed reforms, no-poach and wage-fixing arrangements may be subject to the competition law prohibitions and could constitute cartel conduct.

It is important that non-compete restraints remain a fundamental feature of business acquisitions, serving to protect the goodwill, customer relationships and commercial value for which a purchaser has paid. Otherwise, without it, a seller could undermine the value of the transaction by immediately establishing or joining a competing business following completion.

Ban on coworker non-solicitation terms for all employees

The Bill proposes a blanket prohibition on coworker non-solicitation clauses, regardless of an employee’s income level. An employer will contravene the legislation by including such a provision in a new or varied employment arrangement, with the mere inclusion of the clause giving rise to a contravention.

A “coworker non-solicitation term” is broadly defined and includes any provision that restricts or prevents an employee from recruiting, or attempting to recruit, a current or former coworker to join another employer, business or undertaking following the cessation of employment.

The concept of a “coworker” extends well beyond employees and captures a broad range of workers engaged by the same organisation, including contractors, subcontractors, labour hire personnel, apprentices, trainees, work experience students and volunteers. Importantly, the departing employee need not have worked directly with the individual concerned; it is sufficient that both were engaged by the same employer or organisation.

Cascading restraint clauses prohibited

The Bill also prohibits the common drafting practice of including cascading restraint provisions with multiple alternative temporal or geographic limitations (for example, 24 months / 12 months / 6 months, or 25km / 15km / 5km). Unlike the current severance approach, the proposed regime requires employers to specify one restraint period and geographic scope upfront.

Where a restraint is drafted as a cascading provision, the restraint will be void in its entirety. More broadly, the Bill replaces the existing common law framework and, for employees, displaces the operation of the Restraints of Trade Act 1976 (NSW) with a comprehensive statutory regime under the Fair Work Act. As currently drafted, a court will not be able to read down, sever or otherwise amend an overly broad or imprecisely drafted restraint to render it enforceable.

Importantly, the prohibition does not extend to provisions containing separate geographic restrictions that operate independently of one another. For example, restraints applying within a specified radius of different office locations may remain permissible, even where those areas overlap. The current drafting also suggests that multiple restraints may still be capable of inclusion where they are clearly expressed as separate and distinct obligations rather than cascading alternatives.

Competition and Consumer Act 2010 amendments: no-poach and wage-fixing conduct

The Bill also proposes significant amendments to the Competition and Consumer Act 2010 (Cth), introducing prohibitions on no-poach and wage-fixing arrangements between businesses. Such arrangements would be treated as cartel conduct and expose parties to both civil penalties and criminal liability.

Limited exemptions are proposed for certain arrangements, including genuine joint ventures, secondments, labour hire arrangements and professional sporting competitions. Importantly, unlike non-compete restraints given in connection with the sale of a business, no-poach and wage-fixing arrangements will not benefit from a goodwill-related exception. In addition, parties will be prohibited from giving effect to pre-existing no-poach or wage-fixing arrangements following commencement of the legislation, meaning such provisions are likely to become unenforceable.

The draft legislation also preserves conduct expressly authorised under workplace laws, including multi-employer bargaining arrangements, protected industrial action and measures designed to facilitate enterprise agreement alignment, such as common expiry dates.

When will the changes commence?

The reforms will commence on the first 1 January, 1 April, 1 July or 1 October occurring after the legislation receives Royal Assent. As the Bill is currently in exposure draft form, it must first progress through the parliamentary process before becoming law.

A six-month transitional period will apply following commencement. The civil penalty provisions will apply to employment arrangements entered into, established or varied after the commencement date. Significantly, where an existing employment arrangement is varied after commencement, the new regime may apply to the arrangement as a whole, even where the variation has no connection to a restraint provision.

In the meantime, employers should assess the impact of the reforms on existing employment arrangements, template contracts and broader talent retention strategies.

Deborah Edo
Associate