Reform of non-compete clauses has been on the Government’s agenda for several years, but it has now released the details of its proposed changes. Significantly, the reforms go further than was anticipated, extending beyond a ban on non-compete clauses to also prohibit co-worker non-solicitation clauses and the ability to draft cascading restraint provisions.

The Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 (Cth) (“Bill”) provides details of the proposed reforms, which would result in changes to the Fair Work Act 2009 (Cth).

What are the key changes?

1. A ban on the use of non-compete clauses for employees earning below the high income threshold, and for all casual employees regardless of income;

2. A ban on co-worker non-solicitation clauses for all employees, regardless of income; and

3. A ban on the use of cascading restraint clauses for all employees.

Non-compete ban

Employers often use non-compete clauses in employment contracts to prevent an employee working for, or establishing, a competing business for a specified period of time after their employment terminates.

The proposed reforms ban non-compete clauses for employees who have annual base earnings below the high income threshold (currently $190,100 per year, but ordinarily revised on 1 July each year). This ban also applies to all casual and pieceworkers regardless of their income.

Importantly, the ban extends beyond employment contracts and applies to non-compete clauses in workplace policies, settlement deeds and other employment arrangements.

For employees earning above the high income threshold, non-compete clauses will remain permissible. However, employers should be aware that a non-compete clause may become unenforceable if an employee’s earnings subsequently fall below the high income threshold.

Co-worker non-solicitation ban

The Bill also proposes to prohibit co-worker non-solicitation clauses that prevent employees from soliciting or recruiting co-workers to leave their employment.

The proposed prohibition would apply broadly and a “co-worker” is intended to cover employees, contractors and subcontractors, labour-hire workers, outworkers, apprentices and trainees, work-experience students and volunteers.

Unlike the proposed restriction on non-compete clauses, there is no income threshold. Accordingly, this ban on co-worker non-solicitation clauses will apply regardless of an employee’s earnings.

The proposed reforms do not extend to customer or client non-solicitation clauses, and employers may continue to use appropriately drafted customer and client non-solicitation provisions to protect their business interests.

Cascading restraint ban

The proposed reforms also prohibit the use of cascading restraint clauses. Cascading restraint clauses are commonly used to provide alternative periods, geographical areas or restricted activities, allowing a narrower restraint to apply if a broader restraint is found to be unenforceable. For example, a restraint may, in the first instance, prohibit employment with a competitor within Australia, but if that restraint is unenforceable, within New South Wales, then Greater Sydney, and finally within a specified distance of an employer’s Sydney office.

With cascading restraint clauses banned, employers will need to exercise greater care when determining the appropriate scope and duration of a restraint. An overly broad or lengthy restraint may risk the entire restraint being unenforceable.

When do the reforms commence?

The reforms are intended to commence in 2027, subject to consultation and the Bill being passed by Parliament.

How do the reforms apply to existing employment contracts?

The restrictions will only apply to new employment arrangements entered into, or existing arrangements that are varied, after the commencement of the reforms.

This means existing restraint provisions will not automatically become unenforceable when the reforms commence. However, employers should exercise caution when varying existing contracts. Even where a variation is unrelated to post-employment restraints, the varied contract will become subject to the new regime.

Until the proposed reforms commence, existing post-employment restraints will continue to be governed by the current law.

What should employers do now?

The proposed reforms represent a significant shift in how many employers protect their business interests when an employee leaves.

There are some preliminary steps that employers should already have on their radar. Employers should begin assessing the extent to which their organisation relies on non-compete and co-worker non-solicitation clauses and consider what alternative protections may be required to safeguard confidential information, customer connections and workforce stability.

Depending on the circumstances, employers can consider other mechanisms available to protect their business interests, including:

• extended notice periods;

• gardening leave provisions;

• confidentiality obligations;

• intellectual property protections; and

• appropriately drafted customer non-solicitation provisions.

In the lead-up to the reforms taking effect, employers will need to review their template contracts to ensure they do not include prohibited terms, while continuing to include any permissible restraint provisions where appropriate. However, the drafting of restraint clauses will require greater consideration and tailoring to ensure the scope, duration and operation of any restraint is appropriate and capable of enforcement.

You can read our article on the alternatives to a restraint clause here.