Client Alert: Ban of Non-Compete Clauses by 2027

In last night’s Federal Budget, the Labour Government announced plans to ban non-compete clauses for employees earning less than $175,000. Set to take effect in 2027, this change aims to increase job mobility and earning potential for workers. The ban is expected to have widespread implications for businesses, requiring employers to rethink their talent retention and contract strategies.

What is a non-compete clause?                                                                                    

Non-compete clauses, also known as a restraint, are contractual conditions that prevent an employee from working for or starting a competing business after leaving their current employer.

The enforceability of non-compete clauses has long been a grey area in employment law. For such clauses to be legally binding, they must be reasonable and necessary to protect the legitimate interests of the business.

Impact on Employers and Employees                                                                                       

According to the Labour Government, over three million Australian workers are currently bound by non-compete clauses. Research suggests the ban could lead to an average wage increase of $2,500 per year for workers on median salaries.

For employees, the ban will enhance job mobility, providing greater opportunities for career advancement and salary growth. The Labour Government argues that restricting workers from joining or starting competing businesses has acted as a ‘handbrake on business creation and a speed bump on aspiration.’

For employers, the removal of non-compete clauses means businesses will need to explore alternative retention strategies, such as competitive remuneration, career development programs, and workplace culture improvements. Importantly, the ban will not eliminate all protections for businesses. Employers should ensure that employment contracts include:

• Robust confidentiality clauses to safeguard trade secrets and proprietary information.

• Non-solicitation clauses to prevent departing employees from poaching clients or key staff.

• Intellectual property protection provisions to ensure any business-developed innovations remain within the company.

While this change promotes workforce flexibility, it also presents new challenges for businesses looking to protect their competitive advantage. Employers should begin reviewing their employment agreements now to strengthen these alternative protections before the ban takes effect.

How Gibson MacNeill Lawyers Can Help

To help navigate the complexities of this ban, Gibson MacNeill Lawyers offers expert legal support in reviewing and updating employment contracts to ensure continued business protection. We can assist in:

• Drafting tailored confidentiality, non-solicitation, and intellectual property protection clauses to safeguard sensitive business information.

• Advising on alternative employee retention strategies that comply with the new legal framework while maintaining a competitive edge.

• Ensuring compliance with employment law changes through ongoing legal updates.

Our team is committed to helping everyone proactively adapt to these changes, ensuring all remain protected while fostering a strong and dynamic workforce.

Contact us to discuss how we can assist in future-proofing your employment agreements.