Australian Government to ban non-compete clauses

Tuesday night’s Federal Budget has revealed the Australian government’s plan to ban non-compete clauses for workers earning under the high-income threshold (currently $175,000).

This follows similar moves in the United States where the Federal Trade Commission (FTC) voted to adopt a near-blanket ban on non-compete clauses in 2024.

1.  Policy

The Australian government asserts these reforms could promote wage growth, improve productivity and competition, and increase Australia’s annual GDP by $5 billion.

Non-compete clauses have previously been criticised and a recent Treasury Competition Review found that non-competes were often used beyond senior executive contracts, frequently extending to roles such as hairdressers, childcare workers and construction workers. The mooted use of the high-income threshold echoes the approach of the US FTC, where non-competes are only available for executive employees in policy-making positions earning more than $151,164 USD annually.

However, the future of the US ban is uncertain, following a nationwide injunction against the rule, and changes in the presidential administration and FTC’s leadership. The Commission’s new chair has reiterated his disapproval of the near-blanket ban at a conference in February, but expressed his intention to take alternative action against non-competes where they reduce competition. And whilst a recent memo published by the Commission states that non-competes are within the Commission’s jurisdiction, the US position remains fluid and subject to the pending court appeal. What remains clear is that promoting competition is a priority in both Australian and US jurisdictions.

Non-compete and ‘no-poach’ obligations are distinct from training bonds, such as those between airlines and pilots which we anticipate will not be impacted. This specific focus on non-competes in employment contracts also suggests non-competes intended to preserve goodwill in a business sale context are also unlikely to be affected by the ban. 

2.    Where to next?

The government has said that it will consult on policy details, such as exemptions and transitional arrangements, but it remains unclear what the specific legislation will look like for the time being.

According to the media release, the reforms are set to take effect in 2027, giving workers and businesses time to plan and adjust. While it is early days in this proposal and the Coalition is yet to indicate their policy position, it is opportune for employers to consider where non-competes are appropriate rather than growing the employees subject to these obligations. The use of non-disclosure agreements to enable firms to protect sensitive and confidential information, such as customer lists and rates, without having to enforce restraint clauses are an alternative.

Contacts 

Adam Martin 
+61 3 9119 2585
adam.martin@nortonwhite.com

Alison McKenzie 
+61 3 9119 2535
alison.mckenzie@nortonwhite.com

Keira Nelson
+ 61 2 9230 9440
keira.nelson@nortonwhite.com