Potential for an economy-wide shift in regulating restraints of trade 14 min read
Treasury has released draft laws to ban non-compete clauses for employees earning below a high income threshold, and to prohibit employee no-poach and wage-fixing arrangements.
The proposed reforms are intended to boost labour mobility and wages, and follow last year's announcement by the Federal Government to pursue these reforms.
With Treasury's consultation process closing on Friday 2 October 2026, this Insight explains the key proposed changes and potential impacts for businesses.
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Key takeaways
- Treasury has released an exposure draft of the Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 (Draft Bill), together with draft explanatory materials (Draft EM). The Draft Bill would prohibit employers from including (and relying on) non-compete and non-solicitation clauses in contractual arrangements with their employees going forward (with some exceptions), marking a potentially significant paradigm shift in Australian employment relations.
- The proposed reforms are also intended to impact longstanding common law requirements as to the 'reasonableness' of post-employment restraints, meaning that employers will need to rethink how best to manage some post-employment risks.
- Breaches of certain proposed Fair Work Act 2009 (Cth) (the Fair Work Act) prohibitions will also attract civil penalties (including in relation to prospective employees), adding to an increasingly complex regulatory landscape for most Australian employers.
- The Draft Bill would also prohibit 'no-poach' and 'wage-fixing' provisions in commercial agreements between businesses as a new form of cartel conduct, bringing Australia's competition law more closely into line with jurisdictions such as the United States and the European Union.
- The prohibitions on no-poach and wage-fixing provisions would apply to new agreements made after the reforms commence, and to giving effect to such provisions in pre-existing agreements. Breaches of those prohibitions would be subject to the same civil and criminal penalties applying to the existing prohibitions on cartel conduct.
- As currently drafted, the proposed exemptions to the prohibitions on no-poach and wage-fixing arrangements are detailed and narrow. Further, the Draft Bill does not contain exemptions for provisions arising in general services contracts or sale of business agreements.
Overview of the Draft Bill
The Draft Bill follows Treasury's Competition Review of non-compete clauses and other restraints on workers in 2024, the Federal Government's announcement of the reforms in the context of the 2025–26 Budget and further Treasury consultation on policy details in mid-2025.1
The Draft Bill would amend:
- the Fair Work Act to ban a range of non-compete and non-solicitation clauses for employees; and
- the Competition and Consumer Act 2010 (Cth) (the Competition and Consumer Act) to introduce a new type of prohibited cartel conduct for no-poach and wage-fixing arrangements, subject to certain exceptions.
Proposed Fair Work Act reforms
The Draft Bill, in its current form, provides three key reforms to the Fair Work Act:
- a ban on non-compete clauses for employees whose earnings are equal to or less than the high income threshold (or are casual employees);
- a ban on co-worker non-solicitation clauses for employees, regardless of income; and
- significant restrictions on the scope and form of other post-employment restraint of trade terms.
The bans and restrictions apply to national system employers and employees, covering most Australian employers, but excluding some state/local government employers, and unincorporated businesses in WA. They also apply to 'employment arrangements', which is defined broadly to include:
- a contract of employment;
- a deed between the employer and the employee;
- a workplace policy established by the employer that applies to the employee; and
- any other agreement or arrangement, whether written or unwritten, that regulates the relationship between the employer and employee.
The proposed reforms in detail
Ban on non-compete clauses
- A new right to be free of non-compete terms would apply to employees whose annualised full-time equivalent earnings are equal to or less than the high income threshold (other than casual employees or pieceworkers, who are protected regardless of earnings). For the financial year ending 30 June 2027, the high income threshold is $190,100.
- A non-compete term is defined under the Draft Bill to mean … a term or condition of employment that restricts, prohibits or prevents the employee from, or adversely affects the employee for, seeking to:
- be involved in any business or undertaking subsequent to the employee’s employment; or
- commence subsequent employment.
- Employers would be prohibited from including non-compete terms in employment arrangements and contracts, and those terms would be deemed unenforceable, in circumstances where employees have the right to be free of non-compete terms.
Ban on co-worker non-solicitation clauses
- A new right to be free of co-worker non-solicitation terms would also apply for all national system employees (irrespective of income).
- A non-solicitation term is defined under the Draft Bill to mean … a term or condition of employment that restricts or prohibits an employee from recruiting, or attempting to recruit, a person … to:
- be involved in any business or undertaking subsequent to the person’s employment; or
- commence subsequent employment.
- 'Co-worker' is undefined but is intended to cover a very broad population —current and former employees, contractors and subcontractors and their employees, labour hire workers assigned to the business, outworkers, apprentices/trainees, work experience students and volunteers—with no requirement for any direct working relationship.
- Employers would similarly be prohibited from including co-worker non-solicitation terms in employment arrangements and contracts, and those terms would be deemed unenforceable.
Codifying the common law—the reasonableness requirement for post-employment restraint terms
- Where post-employment restraints (other than co-worker non-solicitation terms) remain permitted, they must be necessary to protect only two legitimate interests applicable to most businesses: confidential information, and client/customer/professional relationships gained through the employment—nothing else.
- The Draft Bill and Draft EM make clear that other legitimate interests courts have previously recognised (such as the interest in 'maintaining a stable workforce') will no longer be protected.
- Where a permitted post-employment restraint of trade term is necessary to protect one of those recognised interests, the term must also be reasonable. In assessing reasonableness, regard must be had to whether the term goes no further than is necessary to protect the relevant interests, and whether the term is reasonable regarding the relationship between the employer and the employee.
Ban on cascading restraint clauses
- 'Cascading' or 'waterfall' restraints, with multiple geographical or time-based restrictions structured as subsets, have long featured in employment contracts as a means of balancing the protection of legitimate business interests and reasonableness in jurisdictions outside NSW. The Draft Bill bans these cascading terms outright, and the entire term (not just the unreasonable parts) becomes unenforceable if used.
- The Draft EM explains that incidentally overlapping restrictions tied to genuinely separate locations (eg a 5-kilometre radius around each of separate Melbourne, Sydney and Perth offices) remain permissible, but multiple distances radiating from the same location would not.
What is carved out? Opportunities to preserve protection
- Properly targeted confidentiality/non-disclosure obligations remain unaffected—but a confidentiality clause drafted so broadly that it effectively prevents an employee taking up new employment (eg covering general industry knowledge or public information) will be treated as a disguised non-compete term and be caught by the ban.
- Genuine retention arrangements (deferred bonuses, vesting stock options, service-conditioned leave entitlements) are excluded from the non-compete definition.
- Reasonable agreed notice periods and fully paid 'gardening leave' clauses remain outside the relevant definition, provided the employee continues to be paid in full during the restraint.
- Restraints outside the employment relationship (eg in sale-of-business agreements or shareholder agreements protecting goodwill) are not captured.
- Terms with 'mixed effect' (eg a payment conditional on not working for a competitor within 50 kilometres) will not benefit from any exclusion and will be treated as a non-compete.
- The reforms also contain specific carve-outs for Federal, state or Territory government employers engaged in conduct to prevent prejudice to Australia’s defence, national security or government integrity.
The new risk of civil penalties
- Merely including a prohibited non-compete term in an employment arrangement is itself a contravention—even if the employer never intends to enforce it. Applicable civil penalties are up to 600 penalty units for serious contraventions or 60 penalty units otherwise, multiplied by five for bodies corporate.
- The same 'mere existence' trigger and penalty structure applies to co-worker non-solicitation terms.
- A separate civil penalty applies for enforcing, or even threatening to enforce, a non-compete term that has become unenforceable, and 'threatening to enforce' is defined broadly to include verbal or written threats.
- Prospective employees, current and former employees, employee organisations and Fair Work Inspectors all have standing to bring proceedings.
Effect on template documents and fair work instruments
- Non-compete and co-worker non-solicitation terms must not be included in modern awards, and this will now be put beyond doubt in the Fair Work Act.
- Such terms in enterprise agreements will be deemed unlawful and of no effect, and the Fair Work Commission must be satisfied before approval that no unlawful terms are included.
- Workplace determinations are subject to the same prohibition.
- Individual Flexibility Arrangements cannot be used to reintroduce these restraints.
- Where an employer wants a non-compete for a high-income employee covered by a fair work instrument, this needs to be effected via a separate supplementary employment arrangement (eg a side letter or specific agreement).
Transitional and commencement issues
- The proposed Fair Work Act reforms are likely to commence within three months of the Bill receiving Royal Assent, but the civil penalty provisions for the non-compete and co-worker non-solicitation prohibitions only take effect six months after that commencement date, and only for employment arrangements entered into or established from commencement.
- Existing restraints in employment arrangements entered into before commencement continue to apply unless the arrangement is varied. If the arrangement is varied on or after commencement—even if the variation has nothing to do with the restraint—the restraint will only continue to apply to the extent it would have if entered into after commencement (ie it becomes subject to the new regime).
- Existing employment arrangements without a restraint, and existing arrangements that are varied by mutual agreement on or after commencement, fall into the new regime prospectively.
- Existing enterprise agreements or workplace determinations already containing a restraint remain operative even if varied post commencement, unless the variation adds a new restraint where none existed.
Practical next steps for employers
In anticipation of the Draft Bill becoming law, employers should:
- Prepare to review their template employment contracts to identify restraint terms that may be prohibited, and consider what amendments may be necessary to bring those contracts into compliance moving forward.
- For employees where non-compete restraints will be prohibited, consider whether legitimate business interests can be reasonably protected by other contractual means such as extended notice periods, gardening leave or augmenting applicable confidentiality obligations.
- Prepare to build appropriate compliance measures into processes for exiting employees, particularly where necessary to manage legitimate risks by seeking to rely on a non-compete term or other permitted post-termination restraint of trade term.
- Where there is a pressing and legitimate business need for non-compete terms for particular senior employees, consider whether changes to the remuneration mix for those employees may be appropriate to bring them above the high-income threshold.
Proposed Competition and Consumer Act reforms
The Draft Bill would also amend the Competition and Consumer Act to prohibit two new categories of inter-business conduct as 'cartel conduct', being:
- 'no-poach' agreements—arrangements between businesses not to recruit, solicit or hire each other’s current, former or future staff; and
- 'wage-fixing' agreements—arrangements between businesses to fix, maintain, decrease or control the remuneration or employment conditions of each other’s current or future staff.
These prohibitions are intended to target staff arrangements between businesses, rather than between an employer and its own employees.
The Draft EM describes these changes as 'closing loopholes' in Australian competition law that may allow businesses to make anti-competitive agreements that prevent staff from being hired by competitors or that cap wages and conditions of employment, including where affected workers are not aware of such arrangements.
This is in circumstances where the current prohibitions on cartel conduct generally do not apply to employee restraints, given that they:
- relate to restraints between competitors in the supply and acquisition of 'goods' and/or 'services', where the term 'services' is defined to exclude work performed under a contract of employment (as distinct from independent contractor arrangements); and
- are subject to an exception for the industrial relations exemption under section 51(2) of the Competition and Consumer Act.
The proposed reforms in detail
Ban on no-poach agreements
- A provision in a contract, arrangement or understanding between parties would be prohibited as a no-poach cartel provision if it has the purpose, effect or likely effect of directly or indirectly:
- preventing a party from recruiting, soliciting or hiring the other party's current, former or future employees; or
- imposing notification or other requirements on a party's process to undertake such activities (such as requiring the other party's consent, or payment of a fee).
- Unilateral conduct, such as an employer merely deciding it does not want to hire from a competitor, would not be prohibited.
- Unlike the existing prohibitions on cartel conduct, the new prohibitions would apply regardless of whether the parties are competitors with each other in the supply or acquisition of goods or services (or even in relation to the hiring of employees).
Ban on wage-fixing agreements
- A provision in a contract, arrangement or understanding between businesses would be prohibited as a wage-fixing cartel provision if it has the purpose, effect or likely effect of directly or indirectly fixing, maintaining, decreasing or controlling the remuneration or other employment conditions of the current or future employees of two or more parties to the agreement.
As currently drafted, the meaning of the term 'party' in this context would be extended to include all related bodies corporate to the parties to the contract, arrangement or understanding.
What types of staff are covered
- No-poach and wage-fixing arrangements would be caught regardless of the affected individual's employment status (eg whether they are permanent, casual or part-time) and earnings.
- Arrangements affecting independent contractors are not covered by the proposed prohibitions, on the basis that equivalent restrictions relating to independent contractors are generally capable of being addressed under the existing cartel conduct prohibitions where the parties to the arrangement are relevantly competitors.
- Arrangements that operate purely within a single corporate group (between related bodies corporate) are not caught.
What is carved out?
- The Draft Bill recognises that some business-to-business arrangements involving restrictions on staff are reasonably necessary to protect legitimate commercial activities, and provides targeted exemptions.
- As currently drafted, the proposed, the exemptions are detailed and narrow, with strict conditions including time limits and transparency and consent requirements. The proposed exemptions relate to:
- joint ventures;
- secondments;
- labour hire arrangements;
- professional sporting leagues; and
- conduct permitted under the Fair Work Act or state and Territory industrial law, government wage setting and specified minimum labour standards codes.
- For example, the proposed joint venture exemption for these new prohibitions is modelled on the existing joint venture exemption for cartel conduct, with additional requirements to protect employees. For the exemption to apply:
- A no-poach or wage-fixing provision must be for the purposes of, and reasonably necessary for, a genuine joint venture.
- A no-poach provision must apply only during an employee's involvement in the joint venture and for up to three months afterwards.
- A wage-fixing provision must end when the employee's involvement in the joint venture ceases.
- Affected employees must also receive written notice of the provision, and provide consent before the provision is given effect.
- At this stage, the Draft Bill does not contain exemptions for provisions arising in the context of:
- general services contracts — where, for example, an acquirer may ordinarily seek that certain employment conditions apply to the service provider's staff as a way of regulating service quality; or
- sale of business agreements — where, for example, an acquirer may ordinarily seek that the seller maintains its workforce arrangements in the pre-completion period, and not recruit employees of the sold business for a reasonable period post-completion.
This would be a significant challenge to normal commercial practice and is seemingly at odds with the Draft Bill's intent—where the Draft EM notes that at least the related changes to the Fair Work Act are not intended to apply in a sale-of-business context.
The new risk of civil and criminal penalties
- The new no-poach and wage-fixing prohibitions would be subject to the same civil and criminal penalties that apply to the current cartel conduct prohibitions.
- The ACCC would be responsible for investigating breaches and enforcing the new bans on no-poach and wage-fixing arrangements, and both the ACCC and private parties could take action in the Federal Court seeking damages, injunctions and other remedial orders.
- Businesses may also consider seeking ACCC authorisation of conduct that may contravene the new prohibitions, on the basis that the public benefit of the conduct outweighs any competitive detriment.
Transitional and commencement issues
- The Government has flagged it intends for the new prohibitions to come into effect in 2027.
- As drafted, the new prohibitions on no-poach and wage-fixing would commence on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent.
- The prohibitions would apply to:
- making a contract, arrangement or understanding containing a no-poach or wage-fixing provision after the new prohibitions commence; and
- giving effect to a no-poach or wage-fixing provision after commencement of the new prohibitions—even if that provision is in a pre-existing contract, arrangement or understanding.
- This means that businesses with existing agreements containing no-poach or wage-fixing provisions would need to ensure they do not give effect to those provisions from the commencement of the new prohibitions, even though the agreement itself was entered into under the current law.
Practical next steps for businesses
The proposed reforms to the Competition and Consumer Act would bring a potentially broad new category of conduct within the reach of competition law and the ACCC's enforcement remit.
In anticipation of the Draft Bill becoming law, businesses should:
- Prepare to review their existing commercial agreements and templates, to identify potential employee no-poach and wage-fixing provisions that may create liability.
- Where relevant, consider alternative measures to protect intellectual property and confidential information.
- Monitor the development of the Draft Bill, including the formulation of the proposed exemptions.
- Consider whether relevant arrangements have a net public benefit and therefore may be suitable for ACCC authorisation—and, if so, consider the timing of any authorisation application and potential transitional arrangements.
Further information
If you would like to discuss the potential impact of these proposed reforms on your business, please feel free to get in contact with us.
You can also refer to our previous Insights No-poach and wage-fixing agreements and Non-complete clause reform on the horizon.