At a glance
- The Australian government has released draft legislation proposing a ban on post-employment non-compete clauses in employment contracts for employees earning below the high-income threshold.
- If passed, the legislation is expected to take effect from 2027.
Proposed reforms
The draft legislation will amend the Fair Work Act 2009 (Cth) (FW Act) to ban the following terms in employment contracts for employees earning below the high-income threshold (currently AUD190,100 base salary, increased annually on 1 July):
- Non-competition terms: Terms that restrict or prevent an employee from leaving to work for a competing business (or adversely affect the employee for doing so).
- Co-worker non-solicitation terms: Terms that restrict or prohibit an employee from recruiting former colleagues.
Under the proposed reforms, including these terms in employment contracts would constitute a breach exposing employers to civil penalties. Additionally, cascading clauses will no longer be permitted for post-employment restraints not otherwise prohibited. In New South Wales, the Restraints of Trade Act 1976 (NSW) will bereplaced by the FW Act provisions for covered employers.
The draft legislation will also amend the 'cartel conduct' framework in the Competition and Consumer Act 2010 (Cth) to prohibit no-poach agreements (where businesses agree not to hire each other's employees) and wage-fixing agreements (where businesses agree to cap wages or employment conditions without employees' knowledge).
The draft legislation is intended to operate prospectively, applying only to contracts entered into or varied after commencement. However, the final position may shift as the legislation is finalised.
When the changes may come into effect
The draft legislation is currently open for public consultation, with submissions due by 2 October 2026.
The government has indicated that, if passed, the legislation could come into effect as early as 1 January 2027.
Takeaways
While the draft legislation has not yet passed, the direction is clear. Employers relying on these terms should consider revising their approach before the reforms take effect. We recommend that employers:
- Review employment contract templates to identify affected roles and plan for updated restraint provisions or alternative protections (such as garden leave and / or longer notice of termination periods).
- Consider strengthening other contractual protections not affected by the reforms (eg confidentiality, intellectual property, and client non-solicitation).
- Monitor the progress of the draft legislation.
More to explore
