Non-Compete Clauses: What Australia’s Draft Ban Means for Your Business

Digging Deeper

What the draft legislation actually proposes

The draft Banning Unfair Non-Competes Bill 2026 does two clear things. It bans non-compete clauses for employees earning below the Fair Work Act high income threshold, currently $190,100. It also extends competition law to certain wage-fixing arrangements between businesses.

Beyond that, the picture is less settled than the headlines suggest. Some analysis of the draft reports that it also addresses co-worker non-solicitation and so-called cascading restraints. Other analysis reports that those matters remain subject to further consultation. Cascading restraints stack a series of shrinking fallback restrictions. A court can strike out the widest version and leave a narrower one standing.

That ambiguity is not a footnote. It is the reason to read the draft rather than the coverage of it. If your business relies on layered restraints, the difference between those two readings is the difference between a minor contract update and a rebuild.

The Government has also signalled that exemptions and safeguards will protect legitimate business interests, including confidential information and trade secrets. What those look like in practice is one of the open questions in the consultation.

Why non-compete clauses are being banned: the evidence

The policy did not appear overnight. Treasury’s Competition Review began examining restraints in 2023. The Government announced the ban in the March 2025 Budget. A policy consultation paper followed in July 2025 and drew 67 submissions.

The evidence base is largely Australian and largely official, which is unusual for a reform of this kind.

• The Australian Bureau of Statistics surveyed around 7,000 employers in late 2023. It found 20.8 per cent used non-compete clauses and 46.9 per cent used at least one type of restraint clause.
• Where non-compete clauses were used, most employers applied them broadly. Around 68 per cent applied them to between 76 and 100 per cent of their workforce.
• The e61 Institute surveyed workers rather than employers. It found one in five had a non-compete clause, including lower paid roles in childcare, labouring and clerical work.
• e61 also found that comparable businesses without widespread restraint use paid workers around four per cent more on average. The Government translates that to roughly $2,500 a year for a typical affected worker.
• A Treasury analysis used linked survey and administrative data. It found no systematic evidence that workers are paid more for accepting the restrictions non-compete clauses impose.

The argument the Government makes from this is a chilling effect. Workers do not test whether a restraint is enforceable. They assume it is, and they stay. The cost is borne in wages, in job mobility and in the rate at which new businesses can form and hire.

Where the evidence is genuinely contested

A credible analysis says where the case is weaker. Three points deserve airing.

The data is exploratory. The ABS describes its own restraint clause survey as experimental, and it was the first of its kind in Australia. It measures employers, not employees, so a percentage of businesses does not translate neatly into a percentage of workers.

Enforcement is rare. Of the businesses using at least one restraint clause, around five per cent had taken or threatened legal action to enforce one. Roughly one per cent reported that a candidate had declined a job offer because of a non-compete. Those numbers sit awkwardly beside the language of handcuffs and padlocks.

Employers have a real counter-argument. The Australian Industry Group has argued the reform is unnecessary. Its position is that non-compete clauses are already unenforceable at common law unless they are reasonable and protect a legitimate interest. It has also warned that an earnings threshold ignores where commercial risk actually sits, and has raised concerns about research and development investment.

None of this makes the reform wrong. It does mean the honest position is that the direction is well supported and the design detail is not yet settled. Anyone telling you otherwise is selling something.

How exposure to non-compete clauses differs by business size

The ABS data shows a clear gradient. Larger employers use restraints more.

Source: Australian Bureau of Statistics, Restraint Clauses, Australia, 2023. Takeaway: exposure roughly doubles from the smallest employers to the largest.

The practical implications differ by size, and not in the way most people assume.

Micro and small businesses are the least likely to use non-compete clauses, but the most likely to have inherited them without thinking. A restraint sitting in a downloaded template is not a strategy. When the ban lands, many will discover they never had meaningful protection. They were never going to fund an injunction.

Medium businesses face the sharpest adjustment. They are large enough to have real client relationships and know-how at stake. They are small enough that losing a key person genuinely hurts. Around a third of businesses in the 50 to 199 band used non-compete clauses. They will need to replace a blunt tool with several sharper ones.

Large employers have the most contracts to review and the most to lose from getting the transition wrong. Forty per cent used non-compete clauses. Most applied them across almost the whole workforce, which means the review is not a matter of checking a few senior agreements. It is a full contract suite exercise, and the population above the high income threshold will need to be identified precisely.

What this means across four sectors

Industry use varies widely. Financial and insurance services led at 39.6 per cent, followed by rental, hiring and real estate at 32.6 per cent. Retail at 12.7 per cent and construction at 13.3 per cent were the lowest.