On 7 September 2026, the government released exposure draft legislation for its proposed reforms to non-compete clauses and other restraints on workers. The Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 (ED Bill) would amend both the Fair Work Act 2009 (Cth) (FW Act) and the Competition and Consumer Act 2010 (Cth) (CCA). Submissions are open until 2 October 2026. See also the consultation hub here.
The ED Bill is more developed – and in some respects different – from the proposals consulted on in 2025. See our insight on the 2025 consultation here.
In this insight, we provide an overview of some of the proposals and examine their potential implications for private capital firms.
What is the government proposing?
We have provided a summary of the government’s proposals below.
Ban on employee non-competes
The government proposes a ban on non-compete terms in employment arrangements for employees earning less than the high-income threshold under the FW Act ($190,100 for the financial year ending 30 June 2027, indexed annually). The same prohibition would apply to casual employees and pieceworkers regardless of earnings.
The definition of a non-compete term is broad and includes terms or conditions of employment which restrict an employee from, or adversely affect an employee for, seeking other employment or being involved in any business or undertaking following the end of their employment. The exposure draft Explanatory Material (EM) states that the ban includes terms which:
- prohibit an employee from seeking employment with competing businesses located a certain distance from the employer’s office;
- prevent an employee from starting a business in the same industry for a specified period; and
- indirectly restrain an employee from freely seeking subsequent employment.
The EM also contemplates that the definition of a non-compete term catches provisions requiring repayment of bonuses earned during employment, requiring payment of a significant out-of-pocket amount, or denying severance benefits if an employee joins a competitor.
There are some important exclusions from the ban including:
- terms that restrict the employee from using or disclosing confidential information gained by the employee in the course of their employment (and so appropriately drafted confidentiality provisions will not be affected);
- remuneration arrangements to encourage employee retention (either monetary or non-monetary, including deferred bonuses or the offer of stock options after certain tenure milestones); and
- terms that provide for agreed reasonable notice periods (including any “garden leave”, provided their full salary is maintained).
Importantly, the EM also states that the definition of non-compete term only aims to regulate the employment relationship and so non-compete terms used in the following contexts are not caught:
- sale agreements: the EM notes that unlike standard non-compete terms included in employment contracts, these terms are included to protect the value of goodwill of the business being sold and are typically essential to ensure the business retains value for the purchaser; and
- shareholder agreements (where employees hold shares): the EM notes that in this scenario, these employees will gain additional financial benefits as shareholders and may also have greater access to confidential information.
Co-worker non-solicitation terms banned altogether
The ED Bill proposes an outright prohibition on co-worker non-solicitation terms (which prevent former employees from recruiting or attempting to recruit former co-workers) for all employees regardless of income (so including senior executives above the high-income threshold). The prohibition is broad and extends beyond employees to co-workers, which includes employees, contractors, labour-hire workers, outworkers, apprentices, trainees, work-experience students and volunteers. This prohibition applies to co-workers who have been employed or engaged by the same entity and doesn’t require a direct working relationship with the former co-worker.
Client non-solicitation terms remain available
The government has not adopted the potential blanket or duration-based prohibition on client non-solicitation restraints (which restrict former employees from soliciting or dealing with clients) considered in 2025.
Overriding restrictions on permitted post-employment restraints
For all permitted post-employment restraints (for example, employee non-competes for employees over the high-income threshold and client non-solicit terms) to be enforceable against an employee covered by the FW Act, they must be both:
- necessary to protect one of the following legitimate business interests:
- the use or disclosure of confidential information that has come to the knowledge or into the possession of the employee by reason of the employee’s employment with the employer; or
- the use or disclosure of professional or personal relationships with customers, clients or professional networks that the employee has gained by reason of the employee being, or having been, employed by the employer.
Significantly, the EM expressly states that maintaining a stable workforce will no longer be a legitimate interest for this purpose; and
- reasonable, having regard to whether it goes no further than necessary to protect the interest and is reasonable between the parties.
Cascading restraints would also be prohibited in employment arrangements. Employers would need to select a singular restraint area and period they consider justifiable rather than relying on multiple alternative periods or geographic areas for a court to read down. A prohibited cascade would render the entire restraint ineffective.
No-poach and wage-fixing agreements
In addition, the ED Bill proposes to extend the existing cartel framework in Part IV of the CCA to cover two new forms of anti-competitive conduct between businesses:
- no-poach provisions: provisions in contracts, arrangements or understandings (CAUs) between employers that prevent a party from hiring or soliciting another party’s staff; and
- wage-fixing provisions: provisions in CAUs that directly or indirectly fix, maintain, decrease or control the remuneration or terms and conditions of employment of staff of two or more parties to the CAU.
Implications for private capital
The draft legislation, if enacted as drafted, could have significant impacts for private capital firms, some of which we have outlined below:
Founder and key manager protections
Private capital firms and portfolio companies will need to distinguish more carefully between protections given by founders and key managers in their capacity as employees from protections given in their capacity as sellers or shareholders. In an employment context:
- non-competes will generally be unavailable below the FW Act high-income threshold (and for all casual workers and pieceworkers);
- co-worker non-solicitation terms will be prohibited regardless of income; and
- remaining permitted post-employment restraints will only be enforceable if they satisfy the new ‘legitimate interest’, reasonableness and non-cascading requirements.
This is likely to increase the importance of carefully drafted confidentiality and client protections, appropriately structured notice and garden leave arrangements, and genuine retention incentives. The use of the Fair Work Act high-income threshold may also be problematic in private capital settings because it is based on annualised full-time equivalent earnings rather than overall economic value of a founder or manager’s package. The definition of earnings draws on existing section 332 of the FW Act and excludes superannuation and payments where the amount cannot be determined in advance, including non-guaranteed incentive payments. This may make threshold analysis difficult for example where a founder or key salesperson has a relatively low salary but significant variable income (through, for example, bonus or commission arrangements) or receives value primarily through their capacity as a shareholder (including through dividends or other capital returns). The high-income threshold is indexed annually to the national minimum wage increase. Where an employee’s earnings become equal to or less than the threshold, any existing non-compete term ceases to have effect.
Management incentive and retention arrangements
The ED Bill expressly excludes additional remuneration or other employment benefits that genuinely encourage retention from the definition of a non-compete, such as deferred bonuses and equity incentives linked to continued employment. However, the EM makes clear that arrangements requiring repayment of bonuses or loss of severance benefits if an employee joins a competitor may be caught.
For private capital-backed businesses, management equity plans, vesting arrangements and good leaver/bad leaver provisions should therefore be considered in light of these proposals, with careful attention to whether the relevant right or obligation arises from the employment relationship or from genuine shareholder economics.
Closer to home, private capital funds will also need to consider the applicability of the proposed changes to arrangements with their own employees, including for example any conditions applied to post-employment entitlements.
Sale agreements and shareholder arrangements
The ED Bill provides greater clarity in relation to the inclusion of restraints in business sale agreements and shareholder agreements.
This should provide comfort for restraints given by founders or management in their capacity as sellers or shareholders. The distinction should nevertheless be maintained carefully. Restraints intended to protect the investment and goodwill of the business should be documented in the relevant sale or shareholder arrangements rather than relying solely on employment contracts. On exit, necessary seller restraints should continue to be included directly in the sale documentation.
Co-worker non-solicitation terms
Co-worker non-solicitation terms in employment agreements will be unenforceable, regardless of the employee’s income or whether the employee had dealings with the co-worker. This is likely to be particularly relevant to private capital-backed management teams where restraints on senior managers recruiting other members of management are common.
Pre-sale NDAs and transaction no-poach provisions
Pre-sale non-disclosure agreements (NDAs) commonly include no-poach provisions, particularly where the seller and the bidder are competitors. Under the proposed CCA amendments, no-poach provisions would become cartel provisions where they prevent or restrict one party from recruiting, soliciting or hiring another party's current, former or future staff. The EM notes that there are some circumstances in which the public interest is better served by permitting specific forms of conduct that may otherwise constitute a no-poach agreement, where these activities may facilitate economically beneficial outcomes that either benefit the affected workers, or benefit the broader economy with negligible impact on affected workers. Currently the ED Bill contains targeted exemptions for arrangements such as joint ventures, secondments and labour hire arrangements, but no equivalent express exemption for sale processes or transaction NDAs. Given that NDA no-poach provisions seek to facilitate disclosure/participation in a sale process, it will be interesting to see whether this changes before the Bill is introduced into Parliament.
What happens next?
The legislation remains an exposure draft (with consultation open until 2 October 2026) and may change before introduction into Parliament.
We will continue to monitor developments but, in the meantime, private capital firms may wish to start considering how the reforms affect their investment protection strategies in advance of the proposed changes taking effect.