The Government has recently announced as part of the Budget for 2025/26 that it will introduce a statutory ban on non-compete clauses for workers earning under $175,000, effective from 2027. It is also proposing to prohibit agreements between businesses that involve wage fixing or ‘no-poach’ clauses.

According to the Government’s media release, more than three million workers are currently subject to non-compete clauses, including those in sectors such as childcare, construction, and hairdressing. The Treasury’s Competition Taskforce Review also received concerning reports of these clauses being misused, for example, minimum wage workers being sued by former employers or threatened with legal action for seeking alternative employment. The proposed ban is intended to address such misuse and reflects the Government’s position that “Australians shouldn’t need a lawyer to go to a higher paying job.”

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What Are Non-Compete Clauses?

Non-compete clauses restrict employees from joining competing businesses or starting similar ventures within a specified timeframe after leaving their current employer. Initially intended to protect trade secrets in high-level positions, their application has extended to low-wage sectors such as childcare, construction, and hairdressing.

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The Government's Reform Plan

As part of the 2025–26 Federal Budget, the government proposes a statutory ban on non-compete clauses for workers earning less than $175,000 annually, effective from 2027. This reform aims to:

• Enhance Job Mobility: Allow workers to transition freely between employers without legal constraints.

• Increase Wages: By facilitating job changes, workers can negotiate better pay, potentially raising median wages by up to $2,500 annually.

• Stimulate Economic Growth: Encourage entrepreneurship and innovation, contributing an estimated $5 billion to the economy annually.

• Promote Fair Competition: Eliminate anti-competitive practices like 'no-poach' agreements that restrict worker movement.

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Key Points of the Proposed Reforms

While there is currently little detail on the proposed reforms, the key points known so far are that:

• The ban will apply to workers earning less than the high-income threshold in the Fair Work Act 2009 (Cth) (currently $175,000).

• The ban will take effect from 2027, giving businesses and workers time to adjust.

• The Government also proposes to close loopholes in competition law that allow businesses to:

• Fix wages by making anti-competitive arrangements that cap workers’ pay and conditions without their knowledge and agreement.

• Use 'no-poach' agreements to block staff from being hired by competitors.

• These reforms will be implemented through amendments to the Competition and Consumer Act 2010 (Cth).

The Government has indicated it will consult on policy details, including exemptions, penalties, and transitional arrangements.

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Consequences for Australian Employers and Businesses

Employers will need to develop alternative strategies, such as retention incentives, to secure against the risk of key workers seeking to compete against them. Important considerations include:

• The scope of workers covered.

• How the high-income threshold is calculated, especially for temporary or part-time workers.

• The scope and type of clause being banned.

• Whether the ban will apply to forfeiture conditions in bonus arrangements.

• How the ban will be implemented and enforced.

• Whether penalties will align with existing employment law offences or match civil penalties under the Competition and Consumer Act.

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Addressing Industry Concerns

While the reform has garnered support from workers' advocates, some business groups express concerns about potential impacts on competitiveness. The government plans to consult with industry stakeholders to address these concerns and ensure a balanced approach.

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Looking Ahead

The proposed ban on non-compete clauses represents a significant shift toward a more dynamic and equitable labour market in Australia. By removing barriers to worker mobility and encouraging healthy competition, the government is taking meaningful steps to support a stronger, more resilient economy.

These upcoming changes could have wide-reaching implications for both individuals and businesses. If you need guidance on how to navigate or prepare for these reforms, or would like to learn more about how Sierra Legal can support your business, please don’t hesitate to get in touch with our team.

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