The Australian Government has introduced a significant reform in the 2025 Federal Budget that will impact employment contracts across the country. As part of this reform, non-compete clauses will be banned for most employees earning under $175,000 per year. This change is aimed at enhancing job mobility, promoting fair competition, and driving wage growth.
For employers, this shift will require adjustments in how they safeguard their business interests, while for employees, it opens up new opportunities previously restricted by such clauses. But what does this reform mean for you and how will it affect your business or career?
What Are Non-Compete Clauses?
Non-compete clauses are provisions in employment contracts that restrict employees from joining competitors or starting their own businesses in the same industry for a defined period after leaving their employer. These clauses are designed to protect sensitive business information, including trade secrets and client relationships, from being exploited by former employees.
However, while they serve to protect business interests, non-compete clauses often limit employees’ ability to explore new job opportunities, negotiate better salaries, or pursue entrepreneurial ventures. Employees may not always fully understand the restrictions these clauses place on their future career prospects. The Australian Government’s reform seeks to reduce these barriers and foster a more dynamic, competitive labour market.
Who Will Be Affected by the Ban?
The ban will primarily affect employees earning under $175,000 per year, as defined under the Fair Work Act. It will impact various industries, including childcare, construction, retail, hospitality, and professional services. Treasury estimates suggest that over 3 million Australian workers are currently bound by non-compete clauses, making this reform one of the most significant workplace changes in recent years.
What This Means for Employers
For businesses, the removal of non-compete clauses will require a strategic shift in how they protect their interests. Employers will need to update employment contracts and explore alternative legal protections for sensitive business information, client relationships, and intellectual property.
This reform may also shift the focus to retaining talent through competitive salaries, improved working conditions, and career development opportunities. As employees gain more freedom to leave their employers, businesses will need to create attractive workplaces that encourage long-term loyalty.
Additionally, businesses involved in mergers, acquisitions, or partnerships that previously relied on non-compete clauses will need to reassess these agreements to ensure compliance with the new laws.
What Employees Need to Know
For employees, this reform provides greater flexibility and bargaining power. Workers will no longer be restricted from pursuing higher-paying jobs or launching businesses within the same industry. However, employees should be aware that other contractual obligations, such as confidentiality agreements, intellectual property protections, and non-solicitation clauses, remain enforceable. These provisions help protect sensitive company information and client relationships, so employees should ensure compliance when transitioning to new opportunities.
When Will These Changes Take Effect?
The government has announced the reform, but the final details are still being worked out. Further consultations with businesses and legal experts will determine the specifics of the legislation, including potential exemptions and penalties for non-compliance.
The proposed timeline indicates that the changes will take effect in 2027, giving businesses time to adjust their contracts and compliance strategies. In the meantime, employers should begin reviewing their agreements, while employees should stay informed about their rights and obligations under the new framework.
Additionally, the government plans to address other areas of competition law, including anti-competitive practices like wage-fixing and ‘no-poach’ agreements. These reforms aim to promote fairer employment practices and prevent such conduct. While the primary focus is on non-compete clauses, further consultations may determine if additional restrictions should be introduced.
How Should Businesses and Employees Prepare?
As these legislative changes approach, it’s essential for both employers and employees to understand their potential impact. Employers should review their employment contracts, identify non-compete clauses, and seek legal advice on transitioning to the new system. Employees, in turn, should familiarise themselves with their rights under the new laws and consider how these changes will affect their career plans.
If you need guidance on how these developments may impact your business or employment situation, Strafurd York Legal is here to assist. Our team can advise on reviewing and updating your employment contracts, ensuring compliance with the upcoming ban on non-compete clauses, and exploring alternative measures to protect your interests. Though the ban is not set to take effect until 2027, now is the time to begin planning for the changes ahead.
Please contact us at 1300 158 066 to schedule a consultation. We are ready to provide clarity and support as you navigate these changes.
By Van Anh Le
