Proposed new laws will dramatically limit post-employment restraints

The Federal Government has introduced for discussion proposed legislation that will insert in the Fair Work Act 2009 (Cth) a right for employees to be free from non-compete clauses where their earnings are equal to or below the high-income threshold ($190,100 for 2026–2027).

Prohibition of non-compete clauses

The definition of a non-compete is broader than many employers may expect and may capture provisions that require employees to repay bonuses, forfeit benefits or incur financial consequences if they commence employment with a competitor. It will not include notice periods or retention bonuses.

Non-compete clauses will be prohibited in employment contracts, deeds and workplace policies.

The prohibition will apply to casual employees and pieceworkers regardless of their earnings.

In addition to being unenforceable, employers may face substantial civil penalties for including prohibited non-compete clauses.

The prohibition will not apply to restraints in contracts made before the commencement of the legislation, which will be some date in 2027.

Reasonable confidentiality obligations or non-disclosure agreements will not be affected.

A non-compete clause that is enforceable when entered because the employee is earning above the high-income threshold will become unenforceable if the employee's earnings later become equal to or less than the high-income threshold.

Restraints that restrict an ex-employee from soliciting a former work colleague will be prohibited regardless of the earnings of the employees involved.

The new laws would not affect restraints on ex-employees soliciting clients.

What about employees earning above the high-income threshold?

Employers will still be able to use non-compete clauses for employees earning above the high-income threshold, but only if it is necessary to protect a legitimate business interest, and reasonable in scope and duration.

Recognised legitimate interests are limited to protection of confidential information and/or customer, client and professional relationships. Maintaining a stable workforce will no longer be recognised as a legitimate business interest capable of justifying a restraint. This reinforces the effective outlawing of anti-poaching clauses.

Prohibition of cascading restraint clauses

The new laws would prohibit the use of "cascading" restraint clauses containing multiple alternative time periods or geographic areas.

If a restraint is drafted in a cascading manner, the entire restraint clause will be unenforceable, and courts will no longer be able to sever unreasonable alternatives and enforce the remainder.

Instead, any restraint will need to be drafted with a single duration and geographic scope, and will only be enforceable where it is reasonable and reasonably necessary to protect confidential information or customer, client or professional relationships.

These aspects of the proposed law may change as government moves through the discussion process.

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