The 2025-2026 Federal Budget proposes significant workplace reforms by banning non-compete clauses in employment contracts.
Non-compete clauses typically prevent workers from (directly or indirectly):
working for a competitive business; or
starting a competitive business,
within a specified area and time period following termination of employment.
These proposed reforms follow last year’s Competition Review.
The proposed ban would amend the Fair Work Act 2009 (Cth) and cover workers earning below the high-income threshold, which is currently $175,000 per annum (updated annually by the Fair Work Commission, effective 1 July).
The high-income threshold under the Fair Work Act is based on base salary, excluding commissions and incentives. Applying it to a ban on non-compete clauses means that many client-facing employees (sometimes with the greatest ability to influence an employer’s customers) who have low base salaries and earn most of their income through variable pay, will be free to compete post-employment. If implemented, employers will need to consider introducing or enhancing other means to protect their businesses.
By banning non-compete clauses, the Federal Government aims to enhance competitiveness and dynamism in the Australian economy. The proposed change could impact over three million workers and is part of a larger agenda to bolster competition, following similar reforms in the US and some European countries.
The ban is slated for implementation in 2027.
In preparation, the Federal Government plans to engage in consultation to refine the proposed reform, including discussions on potential exemptions, penalties for non-compliance and transitional arrangements.
Additionally, the Federal Government will further consider and consult regarding:
Banning of non-solicitation clauses, preventing former workers from soliciting clients/colleagues/suppliers.
The application of non-compete clauses for workers who earn above the high-income threshold.
At this stage, no action is required to be taken by employers. We will provide additional alerts as further details are released.