Hiring someone and worried they’ll take your playbook to a competitor? A non-compete clause is the most common way Australian businesses protect themselves, and it can work well if drafted carefully. But the rules change in 2027. The Federal Government will ban non-compete clauses for most Australian workers, so how you draft these clauses this year has to account for what’s coming.
- A non-compete clause restricts a former worker from competing with you. It stops a former employee or contractor from working for a competitor or starting a competing business for a set period and within a defined area.
- The rules change in 2027. Non-compete clauses will be banned for workers earning under the Fair Work Act high-income threshold (currently $183,100 for FY2025-26). The ban operates prospectively, so existing clauses stay valid, but new contracts need to be drafted with this in mind.
- The ban covers about 91% of Australian workers. Confidentiality clauses and non-solicitation clauses are not covered.
- Courts already refuse to enforce over-wide restraints. “Wider” usually means too long, too broad geographically, or too generic about what the worker can’t do.
- Business sale agreements are exempt. Non-competes protecting goodwill in a business sale are not affected by the 2027 reforms.
What is a non-compete clause?
A non-compete clause is a provision in an employment agreement or contractor agreement that kicks in after the person leaves your business. It stops them, for a defined period and within a defined geographic area, from:
- Working for a direct competitor
- Starting a business that competes with yours
- Using confidential information they picked up while working for you
- Servicing the clients or customers they worked with while employed by you
It is one of several “post-employment restraints” a business can use. The others are non-solicitation clauses (no poaching your clients or staff), confidentiality or non-disclosure clauses (no using or disclosing your confidential information), and exclusivity clauses (no working for competitors during the employment). The 2027 reforms target the non-compete specifically, not these other protections.
For reference, you can include a non-compete as a clause inside a full time employment agreement, or as a standalone non-compete agreement executed as a deed.
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How do the 2027 non-compete reforms affect your business?
On 25 March 2025, the Federal Government announced a ban on non-compete clauses for employees earning less than the Fair Work Act 2009 (Cth) high-income threshold (set at $183,100 for FY2025-26 and indexed annually). The ban takes effect in 2027 following legislation through Parliament, and will apply prospectively to new contracts signed once the law is in force.
The reforms will cover approximately 91% of Australian employees. Treasury is also consulting on whether to extend the ban to independent contractors in employee-like roles, and whether to restrict non-solicitation clauses.
What the reforms do NOT change:
- Non-disclosure and confidentiality obligations. These remain fully enforceable.
- Non-compete restraints in business sale agreements that protect goodwill the buyer has paid for. These are expressly excluded from the ban.
- Non-competes for workers earning above the high-income threshold. Treasury is still consulting on whether reform is needed for this group.
Practical effect for employers: if you are drafting employment contracts in 2026 for workers earning under $183,100, you should either leave out the non-compete or structure your protection differently. Confidentiality and non-solicitation clauses are doing more of the heavy lifting from 2027 onwards.
When can you actually enforce a non-compete clause in Australia?
Even before the 2027 ban, Australian courts apply a “reasonableness” test to any post-employment restraint. The restraint is only enforceable if it goes no further than necessary to protect a legitimate business interest.
Three elements are weighed by the court:
- Legitimate business interest. You must be protecting something specific, such as confidential information, customer connections, or a stable workforce. Stopping someone from earning a living in their field is not a legitimate interest.
- Duration. Restraints beyond 12 months face significant scrutiny and need strong justification. Six months is routinely enforced, 12 months is achievable with justification, 24+ months rarely is.
- Geographic scope. The area must match where you actually operate. An Australia-wide restraint is hard to justify for a single-location hairdresser. A suburb-level restraint is usually fine.
In NSW, the Restraints of Trade Act 1976 gives courts an extra power to “read down” an unreasonable restraint to make it enforceable. In other states, if a restraint is unreasonable, the court simply strikes it out and you get nothing. That’s why cascading clauses are so common: they list a ladder of shorter periods and smaller areas so the court can pick the widest reasonable option.
What we see in Lawpath consultations
Three patterns show up regularly when Lawpath lawyers review employment and contractor agreements:
The “same or similar” trap. One of the most common briefs we see is a contractor or employee who has been given a contract with a non-compete covering “same or similar” work. In specialist fields like jewellery design, paediatric physiotherapy, niche software, and specialised trades, “similar” reads so wide that the worker is effectively banned from their profession. When that happens, courts usually refuse to enforce the clause. If you are drafting a restraint, define the prohibited activity specifically. If you are signing one, ask for amendments before you start.
Contractor agreements that have not kept up. Restraints go stale when the services change. A psychology or allied health contractor who moves from telehealth to in-person sessions needs new sub-clauses on where they can work, who pays for rooms, and what counts as “competing” work. If you’ve expanded services or opened new locations since the agreement was signed, the restraint should be reviewed.
Restraints that scare workers but would not survive a challenge. Lawpath lawyers regularly field questions from workers earning under $70,000 who have been handed contracts restricting them across Australia for 12 months. These are often unenforceable even under the current law, but the presence of the clause is enough to stop people changing jobs. From 2027, these restraints will be void at the point of drafting. Until then, they are still being signed every week.
What should you do right now about non-compete clauses?
Until the 2027 reforms take effect, existing clauses are still valid if reasonable. Practical steps for this year:
If you are an employer:
- Audit your current employment and contractor templates. Identify which clauses rely on a non-compete that will be void from 2027.
- Strengthen your restrictive covenants around confidentiality and client non-solicitation. These are not affected by the ban.
- For senior roles earning above $183,100, your non-compete is still live, but it still has to pass the reasonableness test.
- Train managers on what information is actually confidential. The restraint is easier to enforce if you can point to specific material the worker had access to.
If you are an employee or contractor:
- Before you sign, check the duration, area, and scope. A restraint wider than your employer’s actual business is usually unenforceable.
- If the clause covers “same or similar” work in a specialist field, ask for a narrower definition or remove the clause.
- If you’re challenging a restraint your former employer is threatening to enforce, get advice before you act. The cost of a bad decision here is typically much higher than a consultation.
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FAQs
Are non-compete clauses legally binding in Australia?
Yes, non-compete clauses can be binding in Australia, but only if they are reasonable in duration, geographic scope, and the interest they protect. From 2027, they will be void for employees earning under the Fair Work Act high-income threshold ($183,100 for FY2025-26).
How long can a non-compete clause last in Australia?
There is no legislated maximum. Courts generally enforce restraints of 6 months without much scrutiny, restraints of 12 months with strong justification, and rarely enforce restraints beyond 24 months. The longer the restraint, the more specific the business interest needs to be.
Do non-compete clauses apply to independent contractors?
Yes, contractors can be bound by non-compete clauses. Enforceability is assessed the same way as for employees, based on reasonable duration, area, and protected interest. Treasury is consulting on whether the 2027 ban should extend to contractors in employee-like roles.
Will the 2027 ban make my existing non-compete clauses void?
No. The ban operates prospectively. Existing contracts will not automatically become invalid, but new contracts signed after the law takes effect (expected 2027) that include a non-compete for a worker earning under the high-income threshold will be void.
Does the 2027 ban apply to business sale agreements?
No. Non-compete clauses in business sale agreements, which stop a seller competing with the buyer for a period after the sale, are expressly excluded from the reforms. These restraints protect the goodwill the buyer has paid for and remain enforceable.
What happens if a court finds my non-compete is too wide?
In NSW, the Restraints of Trade Act 1976 lets the court read the clause down to a narrower, reasonable version. In every other state, if the restraint is unreasonable the court strikes it out entirely. A well-drafted cascading clause is the usual way businesses outside NSW build in the same flexibility.
Can I use a non-disclosure agreement instead of a non-compete?
Often, yes. NDAs protect confidential information directly, do not restrict a worker’s ability to earn a living, and are not affected by the 2027 reforms. For most small businesses, a well-drafted NDA combined with a narrow non-solicitation clause gives better protection than a broad non-compete.
What is the difference between a non-compete and a non-solicitation clause?
A non-compete stops the worker from competing with your business at all for a period. A non-solicitation clause is narrower. It only stops them approaching your existing clients or poaching your staff. Non-solicitation clauses are generally easier to enforce and are not targeted by the 2027 reforms.
Get the clause right the first time
If you are drafting or signing a non-compete in 2026, the cost of a 30-minute call with an employment lawyer is almost always less than the cost of a dispute. You can get a fixed-fee quote from a Lawpath-panel employment lawyer, or use the Non-Compete Agreement template as a starting point and have a lawyer tailor it to your business.
Last reviewed: April 2026. Reviewed by Lawpath’s in-house legal and accounting team. This article is general information only and does not constitute legal advice. For advice specific to your business, speak with a Lawpath employment lawyer.
