Non-Compete Clauses In Australia: What’s Changing In 2027

Australia is proposing major changes to non-compete clauses, with reforms expected to take effect from 2027. For many SMEs, this could change how employment contracts are written and how businesses protect client relationships, confidential information, and their commercial interests.

Most businesses include a non-compete clause in their employment contracts as a matter of course. On paper, it sounds like a rational inclusion. If someone leaves the business, they’ll be restricted from taking clients from their previous job or working with a direct competitor.

Let’s take a look at what’s changing, what business owners should know, and what they should be doing now.

What is a non-compete clause?

Non-compete clauses are conditions in employment agreements that prevent or restrict a worker from moving to a competitor (Australian Government Treasury). It typically prevents an employee from:

• working for a competitor after leaving the business
• starting a competing business
• soliciting former clients or customers
• recruiting former colleagues

These clauses are usually limited by time period, geographic area, and industry.

They’re intended to help protect a business from unfair competition or the misuse of sensitive or confidential information. However, these can also restrict a person’s ability to earn a living—which Australian courts tend to scrutinise closely.

What does the law say about non-compete clauses?

At present, non-compete clauses sit under common law. As mentioned above, courts support the view that a person should be able to earn a living. In the eyes of the courts, a non-compete clause will only be enforceable if a business can show that they’re protecting tangible assets like confidential information, client relationships, or trade secrets.

A non-compete clause also has to be reasonable in its time, location, and what’s actually being restricted for it to hold up in court. The Fair Work Act doesn’t have clear-cut guidelines on this, so it all comes down to what a court judges as ‘reasonable’ when push comes to shove.

What do courts look at when assessing non-compete clauses?

If a clause is too broad, unreasonable, or too restrictive, the courts won’t look favourably on the business.

For example, preventing a junior employee from working anywhere in the same industry for 12 months may be difficult to justify. A non-compete applied to a senior employee with access to highly confidential information or relationships with clients is likely more defensible than the former.

This is why many businesses include non-compete clauses in contracts, but rarely undertake legal action against an employee unless there is a significant commercial risk.

What are the changes being proposed to non-compete clauses?

The Australian Government has announced plans to ban non-compete clauses for workers earning below the high-income threshold under the Fair Work Act.

The proposed changes are expected to take effect in 2027. While legislation hasn’t been finalised, we are expecting to see more information on this coming out in the latter half of 2026.

If introduced as proposed, the reforms would:

• Ban non-compete clauses for many employees earning below the high-income threshold
• Limit the use of post-employment restraints for a large portion of the workforce
• Increase scrutiny on how businesses use restraint clauses in employment contracts

What do the proposed changes for non-compete clauses mean for small businesses?

As many SMEs have non-compete clauses in their employment contracts, this will mean a change in how contracts are written and how business risks are managed.

Businesses may need to rely less on broad non-compete clauses and instead more on targeted, well-crafted protections that focus on genuine business risks.

What should employers do now?

Now is a good time for businesses to review their employment contracts and workplace protections.

We advise looking at contracts and to consider:

• Whether existing non-compete clauses are reasonable and necessary
• Which employees genuinely require additional protections
• Whether confidentiality and non-solicitation clauses are drafted correctly
• How client relationships and confidential information are protected and managed internally
• Whether contracts have been updated recently to reflect current legislation and business needs

The advice we always give businesses when it comes to their documentation is to ensure that they are updated. Many businesses get unpleasant surprises when they discover that their contracts have outdated or unenforceable clauses simply because they used templates that aren’t applicable to their business or haven’t been viewed in years.

Final thoughts

Non-compete clauses have famously existed in a gray area when it comes to legalities. They’re commonly included in contracts, but are not always easy to enforce. The proposed reforms for 2027 have the potential to significantly change how businesses approach the inclusion of these clauses moving forward.

The key takeaway is preparation. Reviewing your contracts now can help you ensure your contracts remain compliant, not to mention commercially practical and aligned with the evolving employment law landscape.