Introduction
The Australian Government has announced plans to ban non-compete clauses in employment contracts for most workers from 2027.
This reform will significantly affect how employers across all industries from technology, energy and professional services to fashion, fintech, skincare and beauty sectors and beyond – protect their confidential information and client relationships.
If your business relies on restrictive covenants or restraints of trade to prevent staff joining competitors, now is the time to review your employment contracts and adopt enforceable, future-proof alternatives in your contracts.
What Is a Non-Compete Clause?
A non-compete clause restricts an employee from working for a competitor or starting a competing business after they leave your organisation. These clauses are only enforceable if they are reasonable – limited by duration, location, and scope – and if they protect a legitimate business interest such as confidential information, client relationships, or intellectual property.
Under the Government’s proposed reforms, non-compete clauses will be unlawful for employees earning below the Fair Work high-income threshold (currently $183,100, indexed annually).
Why Is the Government Banning Non-Competes?
According to Treasury’s Competition Review, non-compete clauses can:
- Reduce labour mobility and employee wages,
- Prevent innovation and competition, and
- Disproportionately affect low and middle-income workers.
The Government’s goal is to improve productivity, wages, and fairness in the workforce, especially in fast-moving sectors like tech, renewable energy, fintech, and creative industries.
Who Will the Ban Apply To?
From 2027, the ban will likely apply to:
- Employees earning below the high-income threshold,
- New contracts or contract variations entered into after commencement, and
- Possibly contractor and consultancy arrangements (pending further consultation).
Employers should therefore ensure their contracts are updated well before 2027 to remain compliant.
How This Reform Impacts Key Industries
This ban will be especially relevant for:
Who stands to lose the most? While the proposed ban would apply across the board, some industries are more exposed than others. These are sectors where the value often walks out the door in someone’s head – or their phone contacts.
Commercial and Professional Services: Law firms, accounting practices, recruitment agencies, consultancies – these businesses have always understood that their most valuable asset goes home every night. Client relationships are personal, and when a senior employee leaves, the question is rarely if clients will follow, but how many.
Renewable Energy and Solar: This is a sector where technical expertise and client relationships are the competitive advantage. Installers, engineers, and sales teams develop deep knowledge of system design, pricing structures, and customer networks. When they move, that intelligence moves with them—often to a competitor tendering on the same projects.
Fashion and Beauty: It’s not just about formulas and supplier relationships (though those matter). In an industry increasingly driven by influencer partnerships and brand identity, key employees often hold the relationships that are the brand. A departing marketing director or brand manager can take more than know-how – they can take the face of your next campaign.
What Employers Should Do Now (2026)
Technology and Fintech: In an industry built on proprietary systems, algorithms, and data, the risk isn’t just that a developer might join a competitor – it’s that they might become one. Non-competes have traditionally given tech businesses breathing room to innovate without watching their IP appear in a rival’s product six months later.
If non-competes are off the table – or significantly weakened – the businesses that fare best will be those that aren’t relying on them as a crutch. Here are some practical steps to consider:
1. Audit Your Current Employment Contracts
Now is the time to review your employment contracts and contractor agreements. Which roles genuinely require post-employment restraints, and which have non-competes simply because they’ve always been there? Understanding your current exposure is the first step. Check all of your non-compete or restraint-of-trade clauses, non-solicitation or confidentiality obligations and/or IP assignment or ownership provisions. An early review allows you to replace risky clauses before the law changes.
2. Strengthen what still works
Non-competes may be on the chopping block, but confidentiality clauses, intellectual property assignments, and non-solicitation restraints (for now) are not. Make sure these are robust, clearly drafted, and actually enforceable – not just boilerplate copied from a template a decade ago.
Ie, consider incorporating alternatives to non-compete clauses in your employment contracts that remain enforceable and commercially effective. For example, with a non-solicitation clause, instead of preventing an employee from working for a competitor, you can restrict them from:
- Contacting your clients or customers, and
- Recruiting your staff or contractors.
Example: A fintech startup restricts a departing sales manager from contacting key enterprise clients for 12 months rather than imposing a complete ban on working for competitors once they leave.
Example: For senior or sensitive roles, employers can place employees on paid notice periods away from the business, limiting access to confidential information during transition., commonly known as gardening or ‘garden’ leave. Note: You need to be careful it is not a restraint in disguise and should seek legal advice about including this kind of provision in the contract.
Fun fact: It’s called gardening leave because it’s essentially a very British euphemism for “we’ll keep paying you, but please stay home and don’t touch anything sensitive.” The idea is that, instead of working for you – or worse, a competitor – the employee can spend their notice period tending their roses, learning pottery, or finally finishing that Netflix series.
For employers, gardening leave serves several strategic purposes. It keeps the departing employee away from clients, colleagues, and confidential information during that awkward limbo between resignation and departure. Client relationships can be transitioned smoothly without the employee actively cultivating them on their way out the door.
3. Protect your client relationships institutionally
If your client relationships live entirely in one person’s head (or inbox), you’re vulnerable regardless of what the law says. Consider how you can build deeper, multi-touch relationships – regular contact from senior leadership, structured account management, and genuine value-add beyond the individual service provider.
3. Conduct a contact audit
Who owns your client relationships, really? Map out which employees hold key client contacts and consider how those relationships are documented and maintained in your systems. If someone left tomorrow, would you know who to call – and would they take your call?
4. Invest in culture and retention
The best protection against a departing employee taking clients or joining a competitor has never been a contract—it’s giving them a reason to stay. Competitive remuneration, career development, and a workplace people actually want to be part of will always outperform a restraint clause drafted for the worst-case scenario.
Key Takeaways for Employers
✔ Non-compete clauses are likely to be banned from 2027
✔ Employers should review and amend contracts now
✔ Confidentiality, non-solicitation and IP clauses are safer and enforceable alternatives
✔ Early preparation reduces litigation and compliance risk
Need Help Updating Your Employment Contracts?
Our firm advises employers across NSW and Australia on:
- Employment contract reviews,
- Restraint-of-trade and confidentiality clauses, and
- Executive employment and commercial risk management.
A quick contract check now could save major headaches later. Contact us today for a contract health check before the 2027 reforms take effect:
connor@lawquarter.com.au | jacqui@lawquarter.com.au