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The Albanese Government’s 2025/26 Federal Budget has introduced sweeping reforms to employment contracts, banning the inclusion of non-compete clauses for workers earning under $175,000 annually. Set to take effect in 2027, the changes aim to boost wages, productivity, and job mobility while sparking debate about their impact on businesses and mergers and acquisitions. Below, we break down the key details and implications.
Are Non-Compete Clauses Enforceable in Australia?
Short answer: Currently, yes – but their enforceability depends on their reasonableness.
Non-compete clauses are currently enforceable if they protect a business’s “legitimate interests”, such as confidential information or client relationships; as long as they are reasonable in geographic scope, duration, and role. However, the landscape as we know it is set to change with the introduction of the Albanese Government’s reforms to prospectively ban non-competes for workers earning below the high-income threshold set by the Fair Work Act 2009.
The government argues that these changes will release the handbrake on business creation, boasting that the reforms will spur on new business entry and competition, which would potentially add some $5 Billion to Australia’s GDP.[1] Critics have raised concerns the $175,000 cap is too high, capturing professionals like accountants, IT specialists, and sales leaders [AFR Article].
How Does a Non-Compete Clause Work?
Non-Compete clauses are used to restrict post-employment activities to protect business interests.
A non-compete clause typically:
- Prohibits joining a competitor or starting a rival business.
- Applies for a defined period, such as 6-12 months in a specific geographic area (e.g., Gold Coast or Queensland).
- Balances employer protections with employees’ right to work.
Under the reforms, businesses can still use non-disclosure agreements (NDAs) and non-solicitation clauses (for clients or staff) to safeguard confidential data [AFR].
Are Non-Compete Clauses Applicable to Contractors?
Short answer: Potentially, however, the reforms’ scope remains unclear.
Current laws allow non-competes for contractors, gig workers, and sale-of-business agreements. The government has flagged further consultation on whether the ban will extend beyond employees. For now, businesses should assume contractors earning under $175,000 may soon be exempt.
Cascading Clauses, Geographic Area & Time Period FAQ’s
Gold Coast Employment Law
A cascading clause for a business operating on the Gold Coast in Queensland would aim to prevent a former employee from working for competitors. The cascading clause provides multiple levels of restrictions:
- Time Periods:12 months, 6 months, or 3 months.
- Geographic Scope: Australia, Queensland, or the Gold Coast.
If a court found the 12-month restriction across Australia unreasonable, it could enforce the narrower option—such as 6 months within Queensland or even 3 months limited to the Gold Coast. This enables the clause to remain enforceable while protecting the employer’s legitimate interests without being overly restrictive.
Courts typically enforce restraints spanning 6–12 months and limited to regions where the employer operates. Nationwide bans are rarely upheld unless justified by the role (e.g., a CEO).
Impact on Mergers, Acquisitions and Start-Ups
The AFR has reported concerns that the ban could lower M&A valuations, as acquirers may struggle to retain key staff post-purchase. For example:
- Tech and finance firms often rely on non-competes to protect client lists during acquisitions.
- Start-ups worry founders could leave to launch competitors, though some argue this fosters innovation as seen in California’s total ban [AFR].
It is speculated that Acquisitions may face reduced protection over goodwill if key employees can collaborate to establish a competing business. [2]
Preparing for the Changes
Businesses should:
- Review employment contracts to remove non-competes for workers earning less than the $175,000 threshold by 2027.
- Strengthen NDAs and non-solicitation clauses to protect trade secrets.
- Audit remuneration structures, as bonuses and commissions aren’t counted toward the high-income threshold.
How Salerno Law Can Help
Navigating these reforms requires tailored legal advice specific to each individual business. Salerno Law’s commercial and employment law teams can assist with:
- Drafting compliant employment contracts and restraint clauses.
- Advising on mergers, acquisitions, and protecting business interests.
- Representing clients in unfair dismissal or restraint-of-trade disputes.
Contact Salerno Law today to future-proof your workplace agreements.
Author Amber Walker
[1] Cracking down on non-compete clauses to boost wages and productivity | Ministers’ Media Centre
[2] Budget 2025: Non-compete bans could hit deals values say investors and lawyers.
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