Employment Law | September 2026
The days of putting a broad restraint clause into an employment contract and hoping part of it survives a court challenge may be numbered.
The Federal Government has released draft legislation aimed at restricting post-employment restraints, and the proposal goes considerably further than simply banning non-compete clauses for lower-paid employees.
If the legislation proceeds in its current form, employers could lose access to some of the most commonly used restraints in employment contracts, including employee-poaching restraints and traditional cascading clauses. Other restraints, including client and supplier non-solicitation clauses, will face a much more demanding test.
The reforms also move beyond employment contracts altogether, with proposed changes targeting agreements between businesses about hiring staff and setting wages.
For employers, this is not a minor drafting update. It is a rethink of how businesses protect clients, staff, confidential information and goodwill when employees leave.
The headline change: non-competes will be banned for many employees
The proposed laws would prohibit non-compete restraints for employees earning below the high income threshold, currently $190,100 per annum.
In simple terms, employers would generally no longer be able to stop those employees from joining a competitor or setting up a competing business after they leave.
More importantly, the proposal does not simply make those clauses unenforceable.
Employers could face penalties for:
- putting a prohibited restraint into a new employment contract;
- attempting to enforce it; or
- threatening an employee with enforcement.
That is a significant change.
At present, an employer may take the view that a restraint is worth including even if its enforceability is uncertain. Under the proposed regime, that approach could itself create risk.
You may also lose the ability to stop staff being poached
One of the more surprising features of the Exposure Draft is the proposed ban on employee non-poaching restraints.
These are the clauses that typically prevent a departing employee from encouraging former colleagues to leave and join them elsewhere.
Under the proposed changes, those clauses would be prohibited regardless of the employee’s salary.
That could be particularly significant in industries where teams commonly move together, including professional services, finance, sales, technology and recruitment.
An employer may still be able to protect confidential information or client relationships, but simply preventing an employee from recruiting former colleagues may no longer be an option.
Client restraints are not disappearing — but they will need to be justified
The Government is not proposing to abolish every post-employment restraint.
Restrictions dealing with clients, customers and suppliers may still be enforceable, as may non-compete restraints for some higher-income employees.
But employers will need to be much more precise about why the restraint exists.
A permitted restraint would need to be reasonable and necessary to protect a recognised legitimate interest, such as confidential information or valuable client relationships.
That means the old practice of inserting the same restraint clause into every contract is likely to become increasingly difficult to defend.
The better question will be:
What exactly are we protecting from this employee, and what is the minimum restriction genuinely required to protect it?
For some roles, that may justify a carefully targeted client restraint.
For others, there may be no real basis for a post-employment restraint at all.
The waterfall clause may be finished
For years, Australian employment contracts have used cascading restraints.
A typical clause might say the employee is restrained for:
12 months, or 9 months, or 6 months, or 3 months,
and within:
Australia, or New South Wales, or Sydney, or 10 kilometres from the workplace.
The idea is to give the court several options. If the broadest restraint goes too far, a narrower one may survive.
That drafting technique has become almost standard in many executive and senior employee contracts.
The Exposure Draft would effectively bring it to an end.
Employers would instead need to nominate a restraint that is defensible from day one.
There may no longer be a series of fallback positions waiting for a judge to select later.
That makes restraint drafting much less about covering every possible scenario and much more about getting the scope right at the time the contract is signed.
The reforms also target deals between businesses
There is another part of the proposed reforms that should not be overlooked.
The Government is also proposing changes to the competition laws dealing with arrangements between businesses about employees.
In particular, the reforms would target:
- No-poach agreements — where two businesses agree not to recruit each other’s staff.
- Wage-fixing agreements — where businesses agree to fix, cap or coordinate employee remuneration.
That creates a competition-law issue separate from the restraints contained in employment contracts themselves.
There are proposed exemptions for certain arrangements, including genuine joint ventures, labour hire arrangements, secondments and professional sporting competitions.
But businesses should be careful about assuming an arrangement falls within an exemption simply because it is commercially convenient or common within an industry.
What about existing contracts?
The proposed laws are not yet in force.
The current proposal is that the reforms would commence from around July 2027.
Existing restraints may not automatically become unlawful merely because they remain written into an older contract.
The bigger issue will be what employers do with them after commencement.
Attempting to enforce a restraint that has become prohibited could expose an employer to penalties.
Employers should also take care when changing or updating existing contracts after the new regime commences. A contract variation may bring existing restraint wording back into focus.
Employers should not wait until 2027
There is no need to start rewriting every employment contract tomorrow.
But there is good reason to start reviewing how the business currently protects itself when employees leave.
For many employers, the answer has traditionally been: the restraint clause.
That may no longer be enough.
Businesses should be looking at the broader protection framework, including:
- confidentiality obligations;
- intellectual property provisions;
- access to commercially sensitive information;
- client ownership and relationship management;
- employee retention;
- garden leave arrangements; and
- whether restraints are actually necessary for particular positions.
It is also worth identifying which contracts currently rely heavily on broad cascading restraints.
Those are likely to require the most attention if the legislation proceeds.
The bigger picture
The proposed reforms do not mean employers will be left without protection.
They do mean employers may have to be much clearer about what they are protecting and why.
The era of broad, defensive restraint drafting appears to be coming to an end.
The businesses best placed under the new regime will be those that can identify their genuine commercial risks and protect them directly, rather than relying on a broad restraint at the back of an employment contract.
The Exposure Draft is open for consultation until 2 October 2026.
The legislation may change before it reaches Parliament, but employers should assume that significant reform is coming and start preparing accordingly.