Breaking the Chains: Will Australia’s Non-Compete Ban Transform the Job Market?
Following the release of the budget on 25 March 2025, the Federal Government has announced reforms targeting non-compete clauses within employment contracts for Australian workers as part of its budgetary policy platform.
The background to this initiative was the release of the Government’s 2023 Issues Paper or “Employment White Paper on Jobs and Opportunities”. The Issues Paper made findings that almost half of businesses utilise contractual restraints.
The government highlights that these reforms align with practices in many other developed countries, aiming to create a fairer and more competitive job market. The changes are based on advice from the Competition Review Expert Advisory Panel. The proposed ban on most non-compete clauses is a major step in the Australian labour market, set to change employment contracts and potentially benefit workers and the economy.
It must be noted that as was stated above, similar reforms have been enacted in the US and UK. However, in the United States, similar reforms introduced by the Federal Trade Commission were successfully challenged in the Federal Court (see Ryan, LLC v FTC, US District Court – Northen District of Texas).
This recent budget initiative seeks to dismantle what the government views as unfair restrictions on the movement of Australian workers, ultimately aiming to boost wages, enhance productivity, and cultivate a more dynamic and competitive economy.
Currently, over three million Australian workers are subject to these contractual clauses, which restrict them from moving to a competitor or setting up a competing business after leaving their current employment for a period of time and within a geographical space.
These clauses can affect workers across various sectors, including childcare, construction, and the beauty industry. The government (through consultation with key Trade Union stakeholders) has heard troubling accounts of their misuse, even against minimum wage workers.
The reform is based on the understanding that non-compete clauses can hinder workers from accessing better, higher-paying jobs and prevent the creation of new small businesses. There is also a view that aside from restricting employment in industries currently facing high demand, the practice of contractual non-compete clauses has become historic and redundant.
Further, even when legally unenforceable, these clauses can deter workers from pursuing new roles.
By removing these barriers, the proposed reforms are projected to lift the wages of affected workers by up to 4 percent, or about $2,500 per year for a worker on median wages. Further, Productivity Commission modelling also suggests these changes could annually improve productivity, adding approximately $5 billion or 0.2 percent - to Australia’s GDP, as well as help reduce inflation. The government also believes that this will spur new business entry and competition by removing a "handbrake" on business creation.
Who Will Be Affected?
The proposed ban will apply to workers earning less than the high-income threshold in the Fair Work Act (currently $175,000, though this figure may be higher in 2027).
In addition to banning non-compete clauses, the government has committed to consulting on the finer details of the policy, including potential exemptions, penalties, and transition arrangements. It will also consider and consult further on non‑solicitation clauses for clients and co‑workers, and non‑compete clauses for high‑income workers.
It's important to note that the changes will be prospective, applying only to new employment contracts entered into from 2027 onwards, providing businesses and workers with time to adapt.
Broader package
These measures are presented as part of a broader package aimed at strengthening competition and supporting workers. This includes the advancement of a national licensing scheme for electrical tradespeople, designed to facilitate seamless work across state and territory borders. These initiatives collectively form a second phase of reforms under the government’s revitalised National Competition Policy.
Conclusion
The government's proposals have received mixed reactions from industry and unions. The Australian Council of Trade Unions supports the ban, seeing non-compete clauses as a way to keep wages low.
On the other hand, the Australian Chamber of Commerce and Industry sees these clauses as useful for protecting business interests like confidential information and inventions and has called for a balanced approach that both protects businesses and encourages workers to move between jobs.
The Coalition has expressed reservations regarding this initiative. Instead, it is anticipated that the Coalition will prioritise re-establishing the Australian Building and Construction Commission (ABCC) to address what it perceives as issues within the building and construction sector. Additionally, the Coalition is expected to reconsider the ‘right to disconnect’ laws introduced in 2024.
Taking all this into consideration, it is expected that Industrial Relations will be a key election topic leading up to the election on 3 May 2025.
If you’re an employer or employee seeking guidance on how these proposed changes may affect your employment contracts or business operations, our experienced Employment team can help. Contact us today for tailored advice to ensure your business remains compliant and competitive.
Disclaimer: The content provided in this publication is intended for general informational purposes only and should not be construed as tailored advice to address specific individual or organisational circumstances. While we strive to offer accurate and up-to-date information, we cannot guarantee its accuracy at the time of receipt or its continued accuracy in the future. Readers are encouraged to seek professional advice or consult relevant authorities regarding their unique situations.
