Non-Compete Reforms in 2027 – What Employers Need to Know

Written by: Rob Montes

• The Federal Government has introduced legislation[i] proposing to reform non-compete clauses and other restraints in Australia to improve job mobility and wage growth, which is a particular concern for low and middle-income workers who may have limited bargaining power when negotiating employment agreements.
• If the changes take effect in 2027, many Australian employers will need to reconsider their employment contracts, with a focus on limiting or tightening the use of non-compete provisions, particularly for lower and mid-level employees.
• For information on the current law with respect to employment restraints, please see Sarah Jones’ article on 17 August 2026<https://www.jhklegal.com.au/restraints-are-they-worth-the-paper-theyre-written-on/>

Key Takeaways

If enacted, the legislation will:

• ban non-compete clauses for low- and middle-income workers below the high-income threshold of $190,100 for the FY27 financial year[ii] (the threshold is calculated on a pro-rata basis for part-time employees or those who have not worked a full year);
• strengthen rules for remaining restraints of trade, with the potential for cascading or fallback positions to be prohibited;
• ban no-poach (i.e., departing employees from recruiting former colleagues), worker non-solicitation clauses, and wage-fixing agreements; and
• introduce limited exemptions.

While the proposed reforms will likely cause a big shift in how Australian employers can use post-employment restraints, there will still be options available for employers to protect their interests; such as longer notice periods and adjusting the terms of incentive arrangements.

Importantly, most restraints in commercial transactions should be left unaffected. So non-compete clauses that are agreed in the context of a business or share sale, or included in shareholder agreements, fall outside the scope of the proposed ban and should continue to be assessed under existing legal principles.

Summary of Key Reforms

Codification of the common law test for restraints 

A restraint must be reasonably necessary, and go no further than necessary, to protect against a specified legitimate business interest[iii], either:

• the use or disclosure of confidential information that has come to the knowledge or possession of the employee by reason of their employment, or
• the use or disclosure of professional or personal relationships with customers, clients or professional networks that the employee has gained by reason of their employment.

If an employee was subjected to a non-compete term at a time when the employee’s earnings exceeded the high-income threshold, but those earnings subsequently fall below the high-income threshold, the non-compete term will cease to have effect for as long as the employee’s earnings remain at or below the high-income threshold.  In that situation, the employer will only be exposed to civil penalties if it seeks to enforce the clause in circumstances where the employee is below the threshold.

Exclusion from Prohibition on Non-Compete 

As the legislation is currently drafted, non-compete restraints agreed as part of a sale and purchase agreement or included in a shareholder’s agreement are not subject to the new civil penalty regime and will continue to be assessed under existing legal principles.

So in a sale agreement context, there will be no prohibition if the restraint is solely for the protection of the buyer in respect of the goodwill of the business.

Prohibition on Co-Worker Non-Solicitation

The legislation proposes an outright ban on co-worker non-solicitation clauses for all employees, regardless of income. The mere existence of a co-worker non-solicitation term in an employment arrangement will contravene this provision. 

The Bill defines a co-worker non-solicitation term as a term or condition of employment that restricts or prohibits an employee from recruiting or attempting to recruit a co-worker or former co-worker to commence employment or be involved in any business or undertaking after the co-worker’s employment.

The term “co-worker” refers to any person who currently or has previously carried out work in any capacity for the employee’s employer. This extends to include contractors or subcontractors, employees of a contractor or subcontractor, employees of a labour hire employer who have been assigned to work in the business, apprentices or trainees, work-experience students, and volunteers. 

Cascading restraint clauses prohibited

The legislation proposes to ban the widespread practice of drafting restraints with alternative temporal or geographic limits (e.g. “12 months / 6 months / 3 months” or “100km / 50km / 10km”).  This will ensure that from the outset, employers will only be able to include post-employment restraint of trade terms that have single temporal or geographical limitations (i.e. one temporal and geographical period). The entire clause is void if a restraint is drafted as a cascading clause, and the employer will not be able to rely on a Court to “sever” or remove the unreasonable parts of the clause. 

Competition and Consumer Act 2010 (CCA) – No-Poach and Wage-Fixing

The legislation also amends the CCA to prohibit no-poach and wage-fixing agreements between businesses, treating such arrangements as cartel conduct subject to civil and criminal penalties.

Exemptions apply for labour hire, secondments, and professional sporting leagues. Most relevantly, no-poach and wage-fixing agreements will not benefit from the goodwill exception in a sale agreement context, and it will be a prohibition to “give effect” to such agreements entered into prior to the legislation commencing.

When will these changes take effect?

Legislative changes are expected to receive royal assent and commence operation during 2027, but no exact date for royal assent of the new legislation has yet been given. (The legislation will commence on the first day of January, April, July, or October to occur after the Bill receives Royal Assent.)

Following commencement, a six-month transitional period will apply before the civil penalty provisions for the new prohibitions will only apply to employment arrangements entered into or established on or after commencement.

The new laws will apply to existing restraint of trade terms in contracts of employment. In that event, any post-employment restraint of trade term will only have effect to the extent it would have been permissible has the arrangement been entered into after commencement of the new legislation.

Accordingly, employers should exercise real caution before making amendments to existing contracts during the transition period. Even an unrelated variation, such as a salary adjustment, could be sufficient to trigger the application of the new regime to an existing restraint clause.

Consultation on the proposed changes in the Bill closed on 2 October 2026. 

What This Means for Employers

Employers who rely heavily on non-compete clauses to protect their workforce and client base should stay abreast of the proposed changes and seek advice on how any changes could affect their existing employment agreements.

Many of the restraint clauses currently in use by employers apply a blanket restraint regardless of a worker’s seniority or income. It’s worth reviewing your current employment agreements if your business relies on restraint clauses to protect client relationships, trade secrets or other confidential information.

While an employer will contravene a civil penalty provision for including non-compete terms in employment arrangements for employees who earn at or below the high-income threshold, the draft prohibition does not extend to:

• terms that restrict, prohibit or prevent an employee from using or disclosing confidential information of which the employee has gained knowledge or come into possession of during their employment;
  • remuneration arrangements to encourage employee retention, whether monetary or non-monetary; 
  • agreed notice periods; and  
  • clauses requiring that an employee take garden leave on full pay.

Employers might need to get more creative in respect of their employment arrangements, for example:

• Employment Documents – the draft legislation makes clear that the prohibition on non-competition restraints only applies to “employment arrangements”, so without Court decisions to formally test the definition it remains to be seen how far it will extend; employers might look at including such restraints in separate documentation such as shareholder or equity participation agreements;
• Extension of notice periods – longer notice periods and more extensive gardening leave arrangements are explicitly carved out from the definition of a non-compete term, and their use is therefore likely to increase significantly;
• Deferred compensation – employers may consider deferred compensation structures, including long-term incentive plans with extended vesting periods, clawback mechanisms and service conditions, as a means of retaining key staff and protecting confidential information. Such arrangements can include “bad leaver” provisions providing a strong financial incentive for compliance, resulting in forfeiture of unvested entitlements where an employee breaches a restraint obligation.

What This Means for Employees

If you’re subject to a restraint of trade clause and considering a move to a competing business, it’s important to get advice before you resign or start a new role. Acting without advice can expose you to potential court action from a former employer; understanding your position early gives you clarity and confidence about your options

For employees above the high-income threshold, non-compete terms remain available, but the Bill clarifies the conditions of enforceability. Not every restraint clause will be enforced. Aside from seniority, the reasonableness of the restriction depends on your circumstances, including:

• the term of the restraint period;
• the area covered by the restraint;
• access to confidential information;
• seniority.

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[i]      Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 (Bill).

[ii]      Threshold is increased annually on 1 July under the Fair Work Act.

[iii]     Maintaining a stable workforce is expressly excluded; so previous Court decisions that accepted a stable workforce as a legitimate business interest will no longer apply.