The Ban on Non Compete Clauses - What Does It Mean?
Amongst all the noise of the recent federal budget season the federal election cycle, the Australian Government dropped a quiet but potentially game-changing announcement for business owners: the proposed ban on non-compete clauses in employment contracts.
For many, this might seem like a subtle shift, but its implications could be significant - especially for small business owners who rely on these clauses to protect their client base, intellectual property and competitive edge.
Let’s unpack what this means, who’s impacted, and what business owners should be thinking about now.
First, What Is a Non-Compete Clause?
A non-compete clause is a section in an employment contract designed to prevent an employee from working for a competitor or starting a competing business for a certain period of time after leaving your organisation. These clauses often:
- Limit competition within a specific geographical area
- Restrict poaching of customers, staff, or suppliers
- Help protect intellectual property and confidential business information
They’ve long been used as a deterrent - helping businesses feel more secure when staff with insider knowledge move on.
What’s Changing?
The recent federal budget included a proposal to ban non-compete clauses in employment contracts for most Australian workers. The government has said this ban would apply to employees earning less than the high income threshold (currently $175,000 and subject to annual increases).
Key points:
- Implementation date not yet determined, but likely to be 2027
- Applies to employees under the high income threshold
- Unclear if specific industries or awards will be exempt
- Likely to be legislated via the Fair Work Act, suggesting broad application
While there’s still time and plenty of detail yet to come, the government has flagged that consultations will take place around enforcement, exceptions, and how to handle existing contracts.
Why the Controversy?
For many business owners, non-compete clauses aren’t just legal jargon - they’re a key part of protecting the hard-earned goodwill of their business. Whether it’s a customer list, trade secrets, or business strategy, there’s genuine concern about the vulnerability created when an employee can walk out the door and set up shop next door.
That said, enforcing these clauses has always been challenging. Legal experts have long warned that non-compete clauses are difficult to uphold in court unless they're very specifically drafted, reasonable in scope, and truly necessary to protect legitimate business interests.
In reality, they often act more as a deterrent than a legal safeguard. Going to court to enforce one can cost tens of thousands of dollars and still yield uncertain results.
A Cautionary Tale
Consider this: a former recruitment consultant dramatically quit her job and, before even leaving the building, launched a new business in direct competition with her previous employer. She had a non-compete clause in her contract.
She immediately approached one of her former employer’s biggest clients.
The employer had grounds to challenge the breach legally—and likely would have won. But the legal advice was stark: the cost to pursue the matter would be $50,000–$100,000. Was the potential business loss worth the fight? In this case, the employer walked away, choosing to maintain client relationships rather than fund a court case.
This is the real-world challenge of relying on non-compete clauses. They offer a sense of protection but are often difficult to enforce in practice.
What Should Employers Do Now?
There’s no need to panic. The proposed change is still just that - a proposal. It hasn’t passed into law, and we are likely at least a year away from implementation. But smart business owners are already thinking ahead. Here’s what you can do:
- Strengthen Your Client Relationships
Ultimately, clients stay where they feel valued. Deliver exceptional service and create loyalty so that competitors, even ex-employees, can’t lure them away.
- Review Your Employment Contracts
While you don’t need to strip out non-compete clauses just yet, be aware that their future is uncertain. Focus instead on:
- Confidentiality clauses
- Intellectual property protections
- Non-solicitation clauses (which may still stand, even if non-competes don’t, we don’t know yet)
- Invest in Culture and Retention
People are less likely to leave (or start competing businesses) if they feel engaged, supported, and well-compensated in your business. Culture is often your best defence.
- Keep an Eye on Legislative Changes
Details are light right now. We don’t yet know how this ban will be applied, what the final thresholds will be, or whether any roles or industries will be exempt. Stay informed and be ready to update your practices as the situation evolves.
The Bottom Line
The proposed ban on non-compete clauses might make headlines, but the truth is, many of these clauses are already difficult to enforce. Rather than relying on legal restrictions to keep former employees at bay, now is the time to focus on building a business that people want to stay with—and customers wouldn’t dream of leaving.
Protect your relationships, nurture your team, and create systems and structures that make your business resilient, no matter what the legal landscape looks like moving forward.
An Invitation
If you’d like to connect with other business owners, leaders and managers, I’d love for you to join us inside our free Facebook Group where you can connect with other like minded business owners, leaders and managers to discuss all things HR:
https://www.facebook.com/groups/hrsupportaustralia
