The Australian government has announced plans to ban non-compete clauses for employees earning less than $175,000 annually, aiming to enhance job mobility and wage growth. This reform, set to take effect in 2027, will impact over three million workers, including those in childcare, construction, and hairdressing. Non-compete clauses, traditionally used to prevent high-level employees from joining competitors, have increasingly been applied to lower-income workers, restricting their employment opportunities. The government estimates that eliminating these clauses could boost wages by up to 4%, adding approximately $5 billion to Australia’s GDP.
Business groups have expressed concerns, arguing that the ban could hinder their ability to protect confidential information and maintain competitive advantages. However, advocates believe the reform will empower workers and promote a more dynamic economy. The government also plans to consult on potential exemptions and penalties before introducing the legislation.
In Australia, non-compete clauses (also known as restrictive covenants) are generally enforceable, but their legal status depends on various factors, such as their reasonableness and the specific terms of the agreement.
Key Points about Non-Compete Clauses in Australia:
1. Reasonableness Test: Non-compete clauses must be reasonable in terms of their scope (geographically and in duration) and the legitimate business interests they aim to protect, such as protecting confidential information or preventing unfair competition. Courts may refuse to enforce a non-compete clause if they believe it is too broad or unreasonable.
2. Enforceability: In Australia, a non-compete clause is more likely to be enforceable for higher-level employees or those with access to sensitive information or trade secrets. For lower-paid employees, non-compete clauses are less likely to be enforced, particularly if they restrict their ability to work in the same field.
3. Public Policy Considerations: Courts take into account public policy when determining the enforceability of non-compete clauses. If a clause is seen to unfairly restrict a person’s ability to earn a living or if it is deemed to be against public interest, it may not be upheld.
4. Employment vs. Independent Contractor: Non-compete clauses can be part of both employment contracts and independent contractor agreements. However, independent contractors may have more flexibility in negotiating such clauses, and courts sometimes view these clauses with more scrutiny in independent contractor agreements.
5. Recent Legal Trends: The Australian government has recently moved towards regulating non-compete clauses more closely, particularly for low-income workers. In the 2025 Federal Budget, there were plans to ban non-compete clauses for employees earning below a certain threshold, aiming to promote job mobility and increase wage growth. This change reflects a shift towards reducing the use of non-compete clauses in lower-wage sectors.
Australian courts typically uphold non-compete clauses if they are deemed necessary to protect an employer’s business interests, such as preventing the misappropriation of confidential information. However, the clause must not be overly restrictive. Courts are unlikely to enforce clauses that significantly limit a worker’s ability to work in their profession or industry unless there is a clear, legitimate business reason.
Non-compete clauses in Australia are enforceable but must be reasonable in scope and protect legitimate business interests. Recent reforms could impact their enforceability, especially for lower-paid workers, and public policy considerations may influence how such clauses are treated by the courts.