Non-Compete Clauses Are Being Banned, Are You Ready?

If your business asks new staff to sign a non-compete clause, that clause now has a use by date. The federal government has released draft legislation to ban non-compete clauses for most Australian employees, with the change expected to take effect in 2027. The threshold that decides who is covered is tied to the Fair Work high income threshold, which sits at $190,100 a year from 1 July 2026. If you run a small business anywhere in Australia, this is worth reading properly rather than skimming, because it changes how you protect client relationships, training investment and confidential information once someone hands in their notice.

What is actually changing

Under the draft rules, employers will no longer be able to enforce a non-compete clause against an employee earning below the high income threshold, currently $190,100 a year and adjusted every 1 July. Treasury estimates put the number of affected workers at around three million, spanning industries that many small business owners would not expect, including childcare, hairdressing and beauty, construction trades, retail and hospitality, and administrative support. The government has also flagged, as part of the same package, restrictions on non-solicitation clauses between co-workers, no-poach agreements between businesses, wage-fixing arrangements and so-called cascading restraints, where several overlapping restrictions are stacked into one contract in the hope that at least one will hold up in court.

Consultation on the exposure draft closes on 2 October 2026, and the reforms are not expected to commence until 2027, so nothing changes overnight. Existing contracts are not being torn up, and the changes are expected to apply prospectively rather than retrospectively. That said, industry bodies including the Council of Small Business Organisations Australia are actively representing small business concerns in that consultation, and the sensible move for any owner is to understand what is proposed now rather than finding out from a staff member who has read the news before you have.

A hairdresser’s case shows the risk already exists today

You do not need to wait for 2027 to see why badly drafted restraint clauses cause problems. In Lochdyl Pty Ltd v Lind, a South Australian hairdressing business tried to enforce a two-year restraint against a stylist who left and, within two days, posted on her personal social media that she had opened her own salon. Several of her former clients followed her. The Magistrates Court accepted the business had a genuine interest to protect, given it had recently paid for the salon’s goodwill and client base, but found two years was simply longer than necessary. The court noted that hairdressing clients typically book four to six weeks ahead and only need one or two appointments to settle in with a new stylist, so a much shorter restraint would have done the job.

The lesson is not that restraint clauses are pointless. It is that a restraint written once, copied from a template and never revisited rarely survives contact with a court, whether that court is applying today’s law or the reformed version coming in 2027.

What small business owners should actually do now

The advice from employment lawyers working through the exposure draft is consistent: take it seriously, but do not panic and rewrite every contract this month. This is still a draft, not law, and the final threshold, exemptions and transition arrangements are not locked in. What is worth doing now is auditing what you actually have in place. Pull your standard employment contract and any individual variations and check what restraint clauses say, who they apply to and how long they last. Look at whether your confidentiality and intellectual property clauses stand on their own, because those protections are not affected by the proposed ban and will matter more once non-compete clauses are gone for most staff. If you rely on non-solicitation clauses to stop a departing employee taking your client list, check they are proportionate and specific rather than a broad, one size fits all restraint, since those are the clauses now attracting the same scrutiny.

For most small businesses, the practical starting point is simply knowing where you stand. That is exactly what our HR Health Check is built for, a focused sixty minute audit that gives you a clear risk snapshot of your current contracts and policies, including where your restraint clauses sit and what needs attention before the rules change. You can see the full details, along with our other support packages for contract reviews and ongoing HR guidance, on our services page.

Whatever you decide to do about the 2027 changes, do not let this be something you deal with only after a resignation letter lands on your desk. The businesses that come out of this transition well will be the ones that used the next twelve months to get their contracts in order, not the ones scrambling to catch up once the ban is already in force.

If you want a second opinion on your current contracts, or simply are not sure whether your restraint clauses would survive a challenge, get in touch through our contact page and we will talk you through it.

Quick Questions

• What is changing with non-compete clauses in Australia?
  • The draft legislation bans non-compete clauses for most employees, with the high income threshold at $190,100 per year from 1 July 2026. The reforms are expected to commence in 2027 and will apply prospectively, not retrospectively.
• Who is affected by the high income threshold?
  • Treasury estimates indicate about three million workers will be affected, spanning industries such as childcare, hairdressing and beauty, construction trades, retail and hospitality, and administrative support.
• When will the changes take effect and how do they apply to existing contracts?
  • The changes will apply prospectively from 2027, and existing contracts are not being torn up. Consultation closes on 2 October 2026, and the final rules will specify exemptions and transition arrangements.
• What should small business owners do now?
  • Audit current contracts to identify restraint clauses and their scope, review confidentiality and intellectual property protections, ensure non-solicitation clauses are proportionate and specific, and consider a focused HR health check to assess current risks before the changes take effect.
• What practical examples illustrate restraint issues and why is revisiting templates important?
  • A case like Lochdyl Pty Ltd v Lind shows that overly broad restraints (such as a two-year non-compete for a hairdresser) can be unreasonable and unenforceable; this highlights the need to revisit templates and tailor restraints to the actual business and role, even before the 2027 reforms.