Government’s move to outlaw non-compete clauses — A long-awaited reform or just another announcement?

The government’s announcement seeking to outlaw non-compete clauses in employment agreements, which was announced earlier this week by Treasurer Jim Chalmers as part of the Federal Budget 2025-26 (Budget), is not news. Nor is it a surprise.

Reform of non-competes canvassed last year

The current government:

• established the Competition Review in August 2023. It led to significant reforms of the Fair Work Act that have already been enacted. Key policy objectives included the removal of barriers to pay increases, in part achieved by increasing job mobility;
• issued a detailed Issues Paper in April 2024 called Non-competes and other restraints: understanding the impacts on jobs, business and productivity; and
• sought public consultation, which had closed on 31 May 2024 receiving 47 submissions. Unsurprisingly, employer groups wanted non-compete clauses to remain, seeing they played a significant role in protecting legitimate business interests, while unions strongly supported the wholesale abolition of non-compete clauses in the employment relationship.

Nothing much had happened until the Budget announcement. The current government could have enacted legislation by now, but had chosen not to do so.

Current proposals

The recent Budget announcement is a compromise. And for now, it is just that — an announcement. It is not the law. If the current government is re-elected with a majority in the upcoming federal election, the proposals will most likely become law as stated in 2027.

If a Coalition government is elected, that is likely to be the end of suggested reform. The business community will not be persuaded to accepts these proposals.

Like all compromises, this is problematic. For example, a successful salesperson earning a low base salary, such as $60,000, but with earnings of $400,000 in commissions, will benefit from the ban on non-competes. Such an employee can pose an existential threat to a business if they hold key relationships and are the face of their current employer, and then leave to work for a competitor.

If the proposals do become law, employers still have protections. For example, the Californian Business Code has long prohibited non-compete clauses in employment agreements. It remains a strong economy with many large employers in the tech and other innovative industries consistently choosing to do business in California.

Here in Australia, non-compete clauses are notoriously difficult to enforce before the Courts. If abolished, or as proposed, restricted to employees earning above $175,000 base salary, then the focus will need to be on ensuring that an ex-employee does not use or disclose confidential information. That focus should be happening already.

What should you do now?

Determine what information is vital and/or confidential to your business. Then protect it in a practical way:

• Implement strong IT security systems.
• Restrict information to those who only need to know.
• Avoid having one sales employee know all customers; rotate sales staff among different customers.
• As a business owner or senior manager, engage with your key customers and establish some form of relationship however minimal. Do not let your customers become strangers.
• Maintain high service levels. If customers are deeply unhappy, they will leave anyway.
• Foster a good workplace culture, or highly skilled staff will leave for better offers.

How can Rigby Cooke Lawyers help?

We can assist with drafting clear effective policies and contracts, for example longer notice periods might be particularly relevant for key staff, and provide training on good human resources practices and most importantly, leadership to ensure staff morale is always actively and positively managed.

And when things go wrong, we will defend you in Court – but let’s not go there.

For further information

For advice on non-compete clauses, or to discuss the proposed reform, please contact a member of our Workplace Relations group.