Continuing its far-reaching competition law reform and productivity agenda, the Australian Government is poised to introduce sweeping reforms to ban non-compete clauses by overriding the common law with new statutory bans, and prohibit agreements between businesses not to solicit (or poach) employees from each other and wage-fixing agreements under competition law. Treasury has begun consulting on the changes, which if passed, would be expected to take effect from 2027. If passed, the amendments would have significant implications for businesses and particularly so for small to medium businesses and their financial sponsors. Interested parties are invited to make submissions up until 5 September 2025.
Key proposals for consultation
On Friday 25 July 2025, the government announced that it had begun consulting on non-compete clauses and other restraints on workers. The key proposals the government is seeking consultation on includes:
Implementation of bans on non-compete clauses - How to define and implement a ban on non-compete clauses for employees earning below the high-income threshold ($183,100 for 2025-2026, indexed annually), including who is covered, how the ban will be enforced, possible exceptions and how the transition will be managed.
Additional reforms - Whether reforms are required for non-compete clauses affecting high-income employees, whether to restrict or clarify the use of client and co-worker non-solicitation clauses, as well as how the law should treat these restraints.
Restraints during employment - Whether changes are required to clarify how restrictions on concurrent employment should apply to part-time or casual employees.
Removing exemptions that currently limit the application of the competition law to non-solicitation and wage fixing agreements – The details of implementing a ban on non-solicitation often referred to as ‘no-poach agreements’ and wage-fixing agreements under the competition law, including consideration of potential exemptions.
Bans on non-competes and post-employment restraints involve introductions of statutory bans under the Fair Work Act, replacing the long-standing common law prohibitions. Treasury reasons that these reforms are aimed at boosting productivity, real wages and business dynamism while reducing regulatory burden and complexity. Treasury refers to the following arguments in support of the proposed reforms:
There is a body of evidence that shows restraints of trade, particularly non-compete clauses, are growing in Australia. ABS data in 2024, reveals that 46.9% of Australian businesses were using some form of a restraint clause, with one in five using some form of non-compete clause.
There is currently no comprehensive national statutory framework for non-compete clauses. The common law has tended to favour businesses in upholding non-competes, which must only be necessary to protect the legitimate interests of the business. There are concerns among stakeholders that the common law favouring of non-competes is not working adequately.
Non-compete clauses reduce job mobility and suppress wages with evidence suggesting employees leaving firms that have a restrictive non-compete clause are 2.1 percentage points more likely to switch industries than those that do not have a non-compete clause.
The changes are also anticipated to have a significant impact on small to medium businesses where many key personnel may earn below the high-income thresholds. This may be particularly relevant to venture capital and private equity firms, given that financial sponsors as a matter of course make funding conditional on key personnel of businesses, often SMEs, being subject to non-competes to safeguard investments.
Competition law implications
Non-solicitation and wage-fixing agreements
The government is committed to amending the Competition and Consumer Act 2010 (CCA) which currently may not prohibit wage-fixing or non-solicitation agreements between businesses. Wage-fixing refers to arrangements where two or more businesses agree to cap wages and other conditions for their workers. Non-solicitation agreements involve businesses agreeing not to actively solicit each other’s employees. According to the Issues Paper, these arrangements are similar to supplier allocation or price fixing cartels.
Currently, the CCA contains exemptions for agreements relating to “remuneration, conditions of employment, hours of work or working conditions of employees”, which has created a grey area for enforcement against wage-fixing and non-solicitation arrangements. The CCA also specifically excludes employment contracts from the application of the CCA by excluding them from the definition of services. The rationale for these exemptions was that labour contracts should be treated differently from goods or services contracts and at the time the CCA was first introduced, it was considered that industrial relations laws would exclusively address employment terms. The proposed reforms will specifically proscribe these agreements as a new form of anti-competitive conduct, removing the benefit of the employment exemption and amending the definition of services to bring employment contracts within the scope of Australian competition laws.
Proposed reforms
Creation of a specific prohibition: The government proposes to introduce a new, explicit prohibition on non-solicitation and wage-fixing agreements as a distinct form of anti-competitive conduct under the CCA. This new prohibition will not benefit from the existing employment-related exemption.
Scope of the ban: The ban will apply prospectively from 2027. Businesses will be prohibited from entering into, or giving effect to, non-solicitation or wage-fixing agreements after this date, even if the agreement was made prior to commencement.
Enforcement and penalties: The Australian Competition and Consumer Commission (ACCC) will be responsible for investigating and enforcing the new prohibitions, with Treasury consulting on whether both civil and criminal penalties should apply to non-solicitation and wage-fixing agreements, or whether a civil penalty regime is sufficient, further noting:
Civil penalties: The maximum penalty for breaches is the greater of $50 million, three times the value of the benefit obtained or 30% of the business’s adjusted turnover during the breach period.
Criminal penalties: For serious cartel conduct, individuals may face up to 10 years’ imprisonment and/or a fine exceeding ‘not exceeding 2,000 penalty units’ (currently $660,000).
Standing to bring proceedings: In addition to the ACCC, private parties affected by non-solicitation or wage-fixing agreements may also seek injunctive relief.
Limited statutory exemptions
The proposed reforms will include limited statutory exemptions, recognising that some legitimate, publicly beneficial business transactions or collaborations require restraints on competition to make them efficient or even possible. Potential exemptions noted by Treasury include:
Collective bargaining agreements: Multi-employer bargaining agreements, which are transparent and subject to worker input, may be exempt.
Joint ventures: Existing exemptions for joint ventures that are not anti-competitive in purpose or effect are likely to be extended.
Secondment arrangements and labour hire: Exemptions may be considered for secondments and certain labour hire arrangements, where non-solicitation clauses are necessary for the functioning of the arrangement.
Professional sports leagues: Exemptions may be considered for salary caps and similar arrangements that are integral to the operation of professional sports competitions.
ACCC authorisation: Businesses may seek authorisation from the ACCC for conduct that would otherwise breach competition law, provided it is in the public interest.
Sale of business goodwill exception remains untouched
The proposed reforms to non-compete clauses apply only to employment relationships and do not affect the longstanding practice of including non-compete clauses in business sale agreements. Non-compete clauses are commonly used in business sale agreements and are exempt from the competition law if the clause is solely for the purpose of protecting the value of the goodwill acquired by the purchaser. Consistent with public comments on the Issues Paper, the government has confirmed that such restraints in the context of a business sale remain outside the scope of the reforms, meaning the established ‘goodwill exception’ under the CCA remains untouched. However, under the Merger Reforms, the ACCC now has powers to directly declare a sale of business non-compete to be unlawful.
Employment law implications
Implementation of non-compete clauses
Treasury is consulting on a proposed ban on non-compete clauses for employees earning less than the high-income threshold under the Fair Work Act 2009 (set at $183,100 for 2025-2026, indexed annually). Treasury has indicated that the purpose of the ban is to improve job mobility, wage growth and productivity, and is said to be supported by evidence that non-compete clauses are widely used – even among low-paid workers – which it claims is having a chilling effect on labour market dynamism.
Definition of a non-compete clause
Treasury’s proposed reforms will introduce a statutory definition of a non-compete clause, aimed at providing clarity and certainty for both employers and employees. The aim is to ensure the definition is sufficiently clear to minimise compliance burdens while effectively targeting the practices that restrict post-employment opportunities for workers.
A term or condition of employment that either prohibits a worker from, penalises a worker for or functions to prevent a worker from: a) Seeking or accepting work with a different person where such work would begin after the conclusion of the employment that includes the term or condition. b) Operating a business after the conclusion of the employment that includes the term or condition. [The] term or condition of employment includes, but is not limited to, a contractual term or workplace policy, whether written or oral. |
The government is consulting on whether the FTC definition is appropriate for the Australian context and whether any specific contractual terms should be explicitly included or excluded from the statutory definition.
Independent contractors
The ban will apply to all employees under the Fair Work Act 2009 below the threshold, covering about 91% of Australian workers. Treasury is also considering whether to extend the ban to independent contractors, especially where their role and conditions are comparable to those of an employee.
Enforcement
Treasury is considering making non-compete clauses not only unenforceable but also subject to civil penalties if included in employment contracts. This is to address the claimed “chilling effect” where unenforceable clauses are considered to nevertheless deter workers from moving jobs. Penalties may be aligned with existing Fair Work Act contraventions, with civil penalties for individuals and companies and potentially higher penalties for serious or repeated breaches. Affected employees, unions, employer organisations, Fair Work Inspectors and potentially third parties such as prospective employers may commence proceedings. The Fair Work Ombudsman will oversee education, compliance and enforcement, while the Fair Work Commission may resolve disputes about whether a clause is a prohibited non-compete.
Exceptions
Exceptions to the ban are proposed to be limited to circumstances of overriding public interest, such as national security, and will be tightly defined. If passed, the ban is expected to take effect prospectively from 2027, with transitional measures such as a grace period for compliance, employer notification requirements and education for businesses and workers. Existing employee duties under common law, equity or statute that may extend beyond employment, would be unaffected. In general, targeted and well-drafted non-disclosure and non-solicitation clauses would also not be captured.
Additional reforms: higher income employees, client non-solicitation agreements and cascading restraints
For employees above the high-income threshold, Treasury is consulting on whether to extend the ban, impose statutory limits (such as mandatory compensation or maximum duration), or retain the current common law approach with clearer requirements for reasonableness and public interest.
Client non-solicitation clauses, which restrict former employees from soliciting or dealing with clients, may be subject to duration limits (for example, 3-12 months), clearer definitions of ‘solicitation’ and limits to clients with whom the employee had direct contact. Co-worker non-solicitation clauses, which prevent former employees from recruiting ex-colleagues, are likely to be banned or subject to strict limitations, as they restrict the freedom of third parties and may stifle competition.
Treasury is also considering introducing clear requirements for all restraint clauses, such as prohibiting cascading clauses (multiple overlapping durations or geographies) and requiring employers to specify the legitimate business interest being protected.
Restraints during employment
Employers often use ‘exclusive service’ clauses to prevent employees from taking on secondary employment. For full-time employees, such restraints are generally considered reasonable. For part-time and casual employees, Treasury is considering restricting these restraints to situations where secondary employment would create a genuine conflict of interest or interfere with primary duties. Any permitted restraint would be subject to a reasonableness test, considering the nature of the role, the industry and the potential for conflict or harm to the employer’s legitimate interests. Treasury noted that these reforms would not affect the enforceability of confidentiality clauses or other obligations to protect trade secrets, business methods or client information.
Next steps
For interested parties wishing to make submissions to the consultation, submissions are due on 5 September 2025. Feedback will help to finalise policy details which includes feedback received from an earlier consultation. Following consultation, Treasury will seek to implement a ban on non-compete clauses for employees earning below the high-income threshold through amendments to the Fair Work Act 2009.
We will publish more detailed updates as further information becomes available – watch this space.