Unlocking employee mobility: Government plans to target ‘non-compete’ clauses

What are non-compete clauses?

Non-compete clauses in employment contracts can be used to prevent workers from leaving their employer to work for a competitor, or to set up their own business in competition with their employer. They are typically constrained by specific defined limits, such as geographical distance and duration of time.

This initiative follows similar initiatives taken in foreign jurisdictions – including recently by the United States Federal Trade Commission.

Why does the incumbent government want to ban them?

The federal Treasurer, Jim Chalmers, has pointed to studies which suggest that non-competition obligations disproportionately impact low-income workers, who face the threat of legal action if they leave their employment to compete directly with their employer, or to work for a competing business.

The proposed reforms have already provoked concern and backlash in some business circles. The morning after the announcement, the Australian Chamber of Commerce and Industry lambasted the proposal as government overreach, arguing that it threatens to undermine legitimate business protections.

Further public debate on the issue is likely to continue over the coming weeks, in the lead-up to a federal election that, whilst not declared, must be held by no later than 17 May 2025.

What do we know so far?

The ban on non-competition obligations for most (but not all) employees will not become law prior to the 2025 federal election. These reforms will only likely eventuate if the incumbent government returns to power for an additional term. If that occurs, they will not take effect until 2027.

The policy details surrounding these reforms will also be subject to further consultation – specifically, on the issue of exemptions, penalties and transition arrangements.

The incumbent government has also, if re-elected, undertaken to consult further regarding whether, and to what degree, the ban should be partially or fully extended to non-solicitation clauses before making a future decision on that issue.

Where to from here?

For now, employers who rely on non-competition obligations to protect their business interests should carefully observe the outcome of the 2025 Australian federal election. The outcome of that election will impact how employers should respond.

This does, however, also serve as an important reminder for businesses to consider whether they place undue reliance on non-competition clauses (if at all) to protect their business interests. If so, this presents an opportunity to review the availability and efficiency of alternative measures that can be taken to protect critical business interests, including confidentiality and IP protection agreements, key man protection measures and other restraints in employment contracts, including non-solicitation.

This article was written with the assistance of Jade Daly.