Australia is on the cusp of an interesting shift in employment law. The federal government announced in its 2025–26 Budget that it will ban most non‑compete clauses for low‑ and middle‑income workers from 2027 (Treasury review). Under the proposed reforms, wage‑fixing agreements and no‑poach arrangements will also be outlawed (Treasury review). These changes aim to boost job mobility and wages while ensuring employers still have tools to protect legitimate business interests. For law firms and corporate counsel, it’s essential to understand the details and start preparing now.
In this article we define non‑compete clauses, summarise the government’s planned reforms, explain the exceptions and transitional rules, and explore the implications for legal practices. We also use a practical example from general practice medicine—a sector where non‑competes often prevent doctors from contacting patients—to illustrate how the ban may affect other professions.
Key Summary
- Ban on most non‑competes from 2027: The government plans to prohibit non‑compete clauses for workers earning below the high‑income threshold (currently $175,000) (MLC factsheet). The reforms will not apply to contracts entered before the legislation takes effect, but transitional arrangements will be set (MLC factsheet).
- Reasons for change: Non‑competes are widespread—about one in five Australian workers are bound by them and one in five businesses use them (Treasury review). Research suggests they suppress wages, reduce job mobility and dampen business dynamism (Treasury review). The government estimates the reforms could boost wages by up to $2,500 a year for average workers and add $5 billion to GDP (MLC factsheet).
- Exceptions to the ban: Clauses may still be valid for senior executives or equity owners who hold at least 10 % of a business, provided the restraint lasts no longer than 12 months and the employer pays at least 50 % of the worker’s base salary during the restraint (Prosper Law article). Separate rules will allow non‑competes in business sale agreements if the sale exceeds $5 million and the seller owns at least 10 % of the business (Prosper Law article).
- Heavy penalties for breaches: Employers that impose illegal non‑competes or enter wage‑fixing or no‑poach agreements could face fines of $50 million, three times the benefit gained or 30 % of annual turnover (MLC factsheet). Enforcement is expected to involve the ACCC and the Fair Work Commission (MLC factsheet).
- Impacts on law firms and GPs: Law practices will need to review employment contracts, strengthen confidentiality and non‑solicitation clauses, and consider garden‑leave arrangements. General practitioners subject to non‑competes that restrict them from communicating with patients may soon be free to join a new practice without breaching the law.
Summary note: The ban on non‑competes aims to improve labour mobility and productivity, but it doesn’t leave employers defenceless. Understanding the exceptions and preparing alternative protections will be critical for legal practices and healthcare organisations alike.
What Are Non‑Compete Clauses?
Non‑compete clauses are conditions in employment agreements that prevent a worker from joining a competitor or starting a similar business after leaving their job (Treasury review). They usually specify a time period or geographical area during which the restriction applies. While employers argue that these clauses protect proprietary knowledge and client relationships, research shows they can have a “chilling effect” by discouraging workers from switching jobs (Treasury review).
The Treasury review lists several related restraints, including non‑disclosure agreements, client and co‑worker non‑solicitation clauses, no‑poach agreements (where businesses agree not to hire each other’s staff), and wage‑fixing agreements (Treasury review). These restraints, while different in scope, often appear alongside non‑competes and can similarly limit employee mobility.
Why Reform Is Needed
Surveys conducted by the Treasury and the e61 Institute in 2023 found that around 20 % of Australian workers are bound by a non‑compete and that about one in five businesses use them (Treasury review). Many of these businesses apply restraints to more than three‑quarters of their workforce (Treasury review). These clauses are not limited to executives; they often cover lower‑wage employees in childcare, labouring and clerical roles (Treasury review).
Research indicates that non‑compete clauses reduce job mobility, wages and firm dynamism (Treasury review). A study cited by the Treasury found that firms with widespread non‑competes pay their workers less and see lower wage growth compared with similar firms without such restraints (Treasury review). As a result, the government argues that banning most non‑competes will help workers move jobs more easily, raise wages (potentially by up to $2,500 a year) and boost productivity by about $5 billion (MLC factsheet).
The reforms also align Australia with international trends. The United States’ Federal Trade Commission is proposing a nationwide ban, while the UK intends to cap non‑compete clauses at three months. By limiting restraints, policymakers hope to foster innovation and encourage start‑ups rather than protecting incumbents through overly restrictive contracts.
The Proposed Reforms and Exceptions
General Rule
Under the Exposure Draft of the Competition and Consumer Amendment (Employee Mobility) Bill 2025, any post‑employment clause that prevents a worker from performing work or operating a business after employment ends will be void and unenforceable from 2027 (Prosper Law article). This covers non‑compete clauses, “around‑the‑corner” restraints and industry‑specific exclusion zones (Prosper Law article). The ban applies prospectively; existing clauses will only remain enforceable for 12 months after the law takes effect unless they meet the new requirements (Prosper Law article).
Statutory Exceptions
Some restraints will still be allowed. The Exposure Draft provides narrow carve‑outs for senior employees who have an ownership stake or access to strategic information. A clause will remain valid if all of the following conditions are met (Prosper Law article):
- The employee held at least 10 % equity in the business at the time of signing.
- The employee was a senior executive under the Corporations Act 2001.
- The restraint lasts no longer than 12 months.
- The employer pays at least 50 % of the worker’s base salary during the restraint period.
Additional provisions permit non‑competes in a business sale if the sale price exceeds $5 million, the seller owned at least 10 % of the business prior to the sale and the restraint period is capped at three years (Prosper Law article).
Transitional Arrangements and Penalties
Existing non‑compete clauses will remain enforceable only for a year after the law commences (Prosper Law article). After that, they must satisfy the new criteria or become void. Employers will not be able to rely on the “blue‑pencil” test (severance of unreasonable parts) to save invalid clauses (Prosper Law article). Breaches could attract fines of $50 million, three times the benefit gained or 30 % of annual turnover (MLC factsheet).
Other Restraints Under Review
The government also plans to ban wage‑fixing and no‑poach agreements (Treasury review), which prevent employers from bidding up salaries or recruiting each other’s staff. Non‑solicitation clauses—restrictions on contacting clients or co‑workers—remain legal but may be scrutinised in future consultations (MLC factsheet).
Implications for Law Firms and Employers
Reviewing and Adjusting Contracts
Law firms and corporate employers should start auditing all employment agreements and policies. Prosper Law notes that existing restraints will become unenforceable when the law commences unless they fall within the exceptions (Prosper Law article). Firms should assemble cross‑functional teams (HR, legal, IT, leadership) to review contracts, record the scope and duration of any restraints, and update staff handbooks and offer letters accordingly (Prosper Law article).
Strengthening Alternative Protections
The removal of non‑competes does not leave businesses defenceless. Prosper Law recommends strengthening confidentiality clauses, intellectual property ownership provisions, and non‑solicitation clauses limited to clients, suppliers and employees (Prosper Law article). Employers might also use garden‑leave clauses (where employees remain on payroll but are not allowed to perform work) and specific liquidated damages linked to confidentiality breaches (Prosper Law article). Deferred equity or retention bonuses can help retain talent while protecting trade secrets.
Preparing Leadership and Policy
Senior partners and HR managers must be trained on the new legal landscape. Prosper Law suggests educating leadership on permissible enforcement tools, revising remuneration to include equity or retention bonuses tied to confidentiality compliance, and planning litigation strategies that identify and resolve any existing restraint disputes early (Prosper Law article). For law firms, this may mean shifting from broad non‑compete clauses to more targeted agreements that protect client relationships without unduly restricting mobility.
Risks and Opportunities
Without non‑compete clauses, employers may face increased staff poaching, loss of commercially sensitive information, and challenges in justifying investments in specialised training (Prosper Law article). However, removing restraints could also improve morale, attract talent and foster a culture of innovation. Legal practices that adapt quickly—by focusing on mentorship, professional development and strong client service—could become employers of choice in a more mobile labour market.
A Healthcare Example: General Practitioners
Non‑compete clauses are not confined to corporate law firms. Many general practitioners (GPs) sign contracts that restrict them from working within a certain radius of their former practice or from communicating with patients if they move to a new clinic. These clauses can prevent doctors from informing patients where they have relocated, potentially disrupting continuity of care. Under the proposed reforms, GPs earning below the high‑income threshold would fall within the ban (MLC factsheet). This means a GP leaving a practice may soon be able to let patients know where they have moved, provided they respect confidentiality and other legal obligations.
For healthcare employers, this underscores the importance of non‑solicitation and confidentiality provisions that protect patient lists and sensitive information while allowing clinicians to move freely. For recruiters and candidates in the Gorilla Jobs network—across both law and healthcare—understanding these changes will be essential to negotiating fair and compliant contracts in the years ahead.
Conclusion
The impending ban on non‑compete clauses marks a seismic shift in Australian employment law. By 2027 most workers earning under the high‑income threshold will be free to change jobs without fear of restraint. While exceptions will remain for senior executives and certain business sale agreements, the overall direction is towards greater mobility and fairer competition. Law firms and other employers must act now to audit contracts, strengthen confidentiality and non‑solicitation provisions, and explore lawful alternatives such as garden‑leave and retention bonuses.
For the legal profession, the reforms present both challenges and opportunities. Protecting client relationships and intellectual property will still be paramount, but restrictive post‑employment covenants can no longer be the default approach. Similarly, healthcare employers—particularly GP practices—will need to rethink how they manage patient handover when doctors move on. By staying informed and proactively adapting, organisations can ensure compliance while fostering a more dynamic and innovative workforce.
Disclaimer: This blog is intended as a general overview of the topic and should not be construed as professional legal or medical advice.
FAQs
- When will the non‑compete ban come into force?
The reforms are expected to take effect from 2027. Existing clauses will be enforceable for 12 months after the law commences unless they meet the new requirements (Prosper Law article).
- Who will still be covered by non‑compete clauses?
Non‑competes may still apply to employees who own at least 10 % of the business or are senior executives, provided the restraint period is 12 months or less and the employer pays at least 50 % of their base salary during the restraint (Prosper Law article).
- Are non‑solicitation clauses affected?
No. The proposed ban targets non‑compete clauses that prevent employees from working for a competitor or starting a competing business. Non‑solicitation clauses, which prohibit contacting former clients or co‑workers, remain valid but could be examined in future consultations (MLC factsheet).
- What should law firms and employers do to prepare?
They should audit existing contracts, identify any post‑employment restraints, and strengthen confidentiality, intellectual property and non‑solicitation clauses. Employers should also consider garden‑leave arrangements, retention bonuses, and training for leadership on the new laws (Prosper Law article).
- How will the reforms affect general practitioners?
GPs earning below the high‑income threshold who currently have non‑compete clauses preventing them from contacting patients or working near their former practice will likely be able to move freely once the reforms take effect. Employers should rely on confidentiality and non‑solicitation clauses to protect patient information (MLC factsheet).
