The Australian federal government has formally announced its intention to prohibit the use of non-compete clauses for low-to-medium income earners, a reform that would represent one of the most significant shifts in the country\u2019s employment landscape in decades. The move, driven by findings from the government\u2019s own Competition Review, targets a practice that has quietly expanded far beyond the executive suite, now increasingly appearing in employment contracts for hairdressers, retail workers, and junior administrative staff. By lowering the legal barriers that prevent workers from moving freely between employers, the government is seeking to boost wage growth, increase labour market dynamism, and address a growing body of evidence that such clauses have depressed competition at the expense of ordinary workers.<\/p>\n
The government\u2019s proposal centres on banning non-compete clauses for employees who fall below a designated income threshold. While the precise earnings figure is set to be confirmed through the legislative process, the government\u2019s announcement points to a linkage with the high-income threshold, which for the 2026-27 financial year is set at $190,100. The threshold is indexed annually, meaning the protected pool of workers will expand over time with wage growth. Any worker earning below this amount would be free from contractual restrictions that, upon leaving a job, prevent them from joining a competitor or starting a competing business.<\/p>\n
The prohibition is slated to take effect from 2027. This timeline allows for the introduction of legislation, expected during the Spring 2026 sittings of Parliament, followed by a period of consultation and passage. The government has made clear that the ban will not extend to non-compete clauses tied to the sale of a business, a carve-out designed to protect the value of businesses during transactions where the seller agrees to a temporary restraint of trade to ensure the buyer receives the full benefit of the purchase.<\/p>\n
Beyond non-compete clauses, the government announced a parallel crackdown on two other practices. No-poach agreements between businesses, which restrict the hiring of a worker from one company to another, are to be prohibited outright. Similarly, wage-fixing arrangements\u2014where businesses collude to cap wages or standardise employment conditions without the knowledge or consent of workers\u2014will also be outlawed. These reforms target the supply side of the labour market, aiming to eliminate explicit collusion that suppresses wages and limits career progression.<\/p>\n
What is a non-compete clause?<\/strong> A non-compete clause is a contractual term that restricts an employee from working for a competitor, or starting a competing business, for a specified period after leaving their current employer. The government\u2019s announced reforms will prohibit such clauses for workers earning under the high-income threshold, meaning that for the vast majority of Australian employees, this restriction will no longer be enforceable once the legislation takes effect.<\/p>\n The Competition Review, which underpins the government\u2019s decision, found that non-compete clauses have become surprisingly common across a broad cross-section of the workforce. Originally reserved for senior executives and key technical staff\u2014roles where legitimate business interests around trade secrets and client relationships justified a limited restraint\u2014the clauses have proliferated into low-wage sectors. A barista prevented from working at a neighbouring caf\u00e9, a call centre agent barred from a competitor in the same building, or a junior software developer locked out of the city\u2019s other startups: these scenarios, once anecdotal, have become statistically significant enough to trouble regulators. The review concluded that this widespread use serves primarily to discourage job mobility, contributing to lower labour market churn and reduced competition for workers\u2019 skills. When employees cannot easily move to a higher-paying competitor, employers face less upward pressure on wages.<\/p>\n The government\u2019s consultation papers indicate that the coming legislative package may extend well beyond the core non-compete prohibition. Of particular concern to businesses is the suggestion that non-solicitation clauses\u2014which prevent departing employees from poaching clients or former colleagues\u2014could also face new restrictions. If included, this would mark a significant expansion of the reform\u2019s reach, as non-solicitation agreements are far more common across industries and are typically viewed as a more defensible form of restraint than blanket non-competes.<\/p>\n Employers in sectors where client relationships are the primary asset\u2014such as professional services, consulting, financial planning, and real estate\u2014are watching this aspect closely. The government has not committed to including non-solicitation clauses in the prohibition, but the language in the consultation documents leaves open the possibility that the review will recommend either restrictions on their duration and scope or outright bans for lower-income workers.<\/p>\n The reforms will require new primary legislation. The government has signalled its intention to introduce a bill during the Spring 2026 sittings of the federal parliament. Given that the 2027 effective date is approximately 18 months away, the timetable is ambitious but achievable if the legislation is not significantly contested in the upper house. The Labor government does not control the Senate outright, meaning negotiations with crossbench senators and potentially the Greens or the Coalition will shape the final form of the bill. Key points of contention are likely to include the definition of the income threshold, the treatment of small businesses and startups, and the scope of any carve-outs for genuine commercial arrangements.<\/p>\n Industry groups have already begun lobbying for a more targeted reform, arguing that a blanket ban based solely on income fails to account for legitimate business interests. A junior employee earning $80,000 at a pharmaceutical company, they argue, might have access to genuinely sensitive research data that a competitor could exploit, whereas a senior executive earning $200,000 in a retail chain might have no such access. The government\u2019s response, based on the Competition Review\u2019s findings, is that the widespread misuse of non-compete clauses\u2014applied as a matter of standard contract boilerplate rather than tailored to protect specific assets\u2014has eroded any presumption of legitimacy for such clauses below a certain income level.<\/p>\n Non-compete clauses in Australia have never been subject to a statutory prohibition. Instead, their enforceability has been governed by the common law, which generally holds that a restraint of trade is void unless the enforcing party can demonstrate it is reasonable in duration, geographic scope, and the interest it protects. In practice, this has placed the burden on employers, but only when a dispute actually reaches court. For the overwhelming majority of workers, the mere presence of a non-compete clause in their contract is enough to deter them from testing its limits. The cost of legal uncertainty\u2014a worker cannot know whether the clause is enforceable without risking a lawsuit\u2014has been a powerful chilling effect on job mobility.<\/p>\n Internationally, Australia is not acting in isolation. The United Kingdom has introduced guidance limiting non-compete clauses to three months. Several US states, including California, have long banned them outright for nearly all workers, while the Federal Trade Commission in the United States has recently moved to impose a nationwide ban, though that rule is currently facing legal challenges. The Australian reforms align with a global regulatory trend that views broad non-compete restrictions as an impediment to efficient labour markets and a contributor to wage suppression.<\/p>\n The government\u2019s Competition Review drew on a growing body of economic research linking non-compete clauses to lower wages, reduced job switching, and weaker business dynamism. When workers cannot move freely to a competitor, employers face less competitive pressure to raise wages, improve conditions, or invest in training. The effect is most pronounced in local labour markets where a small number of firms dominate hiring: a non-compete clause in such a market can effectively turn a job into a monopsony, where the worker has no viable alternative employer.<\/p>\n The review also found evidence that the practice dampens entrepreneurship. Employees who might otherwise leave to start a competing business are prevented from doing so by a contractual clause that may have been signed years earlier, often without independent legal advice. Over time, this reduces the rate of new business formation, concentrating market power among incumbents. The prohibition is designed, in part, to unleash a wave of small business creation by removing a legal barrier that has disproportionately affected workers with less bargaining power and fewer resources to challenge contractual terms.<\/p>\nBeyond Non-Compete: The Broader Review of Worker Restraints<\/h3>\n
The Legislative Timeline and Political Pathway<\/h2>\n
Historical Context: A Practice That Grew in the Shadows<\/h2>\n
Economic Rationale and Evidence of Impact<\/h2>\n
The High-Income Threshold as the Dividing Line<\/h3>\n