The Federal Government has released a Consultation Paper proposing to ban post-employment non-compete clauses for employees earning under the high-income threshold (currently $183,100 p.a.). The reforms, expected to commence in 2027, would make such clauses unlawful, with potential civil penalties for employers who include them.

Key points

The key points of the new legislation include:

• Ban on non-competes: Employees under the income threshold could not be prevented from joining competitors or starting their own businesses.
• Scope: The reforms would not affect restraints linked to the sale of a business, but exemptions may be introduced in the public interest.
• Other restraints: The Government is also considering limits on non-solicitation clauses and tougher rules on anti-competitive agreements such as wage-fixing and no-poach arrangements.
• Drafting practices: The Paper criticises “cascading” restraint clauses and NSW’s Restraints of Trade Act, and mentions possible reforms requiring employers to state the legitimate business interest behind any restraint.
• It won’t apply to existing contracts: It is expected the reforms will not apply to existing contracts containing restraint of trade clauses.

What employers should do now

• Review restraint and confidentiality clauses to ensure they remain enforceable.
• Strengthen confidentiality and intellectual property protections in contracts.
• Consider salary settings for key employees above the high-income threshold, noting this figure is adjusted annually.