Restraint Clauses - is it time for release?
Posted on August 22, 2025
As part of the 2025 Federal Budget, the Government announced it would ban non-compete clauses for employees earning less than the high-income threshold (currently $183,100 per annum).
Other reforms were also announced to ‘close loopholes’ in competition law that may allow businesses to fix wages or use ‘no‑poach’ agreements to limit employees being hired by competitors.
The Federal Treasury is now engaging in consultation, which will build on the findings from the recent Competition Review into non-compete clauses and other related restraints.
Non-compete clauses restrict an employee (or independent contractor) from working for a competitor or establishing a competing business for a period of time and in a geographical area. They may contain cascading restraints for duration and area.
Other restraints include non-solicitation (restricting the solicitation or poaching of former clients, customers or co-workers) and the non-disclosure of confidential information.
The closing date for submissions is 5 September 2025.
What is being considered?
While much of the Government’s announcement has focused on non-compete clauses for employees earning less than the high-income threshold and the impact of restraints on productivity, job mobility and wages growth, the consultation paper raises other topics for discussion. These include:
- if the ban on non-compete clauses should apply to other workers, such as independent contractors.
- if mandatory compensation should be payable by the employer to high-income earners for a non-compete restraint, and the maximum duration of any restraint.
- if there should also be restrictions on non-solicitation clauses and when, if ever, it would be legitimate for business to use co-worker non-solicitation clauses.
- if restraints with cascading duration/geographical location should be allowed.
- the penalties that should apply to businesses that have non-compete, no-poach and wage-fixing agreements in breach of a ban, and whether there should be exemptions to the proposed ban.
The reforms are expected to take effect in 2027. Any transitional arrangements for existing contracts with restraints are currently unknown. What is also unknown is the point in time at which the high-income threshold would be applied to determine if a non-compete clause is allowable – for example at the time the contract is entered into or the time at which the relationship ends.
Can restraints be used now?
The Government’s announcement and current consultation serve as timely reminders to consider the scope of restraint clauses in employment contracts.
Restraints can only be enforced if they are protecting a legitimate business interest. The scope of restraints, and to which employees they apply, should always be considered. In the event of a dispute, cascading restraint clauses may be determined to be unenforceable if they are uncertain.
Next steps
It has been estimated that approximately one in five businesses use non-compete clauses, which apply to three million employees. It is clear that the changes to non-compete and other restraints will have a significant effect on businesses. We will keep you informed about the extent of the reforms but in the meantime, we encourage interested stakeholders to contribute to Treasury’s consultation.
Please contact our workplace relations team if you require any advice regarding the use of restraints.
