Australia’s current restraint laws are portrayed by the Government as anti-competitive and in need of reform but do the new proposals go too far?
The Federal Government’s proposed ban on non-compete clauses was promoted principally as a measure to prevent low and middle income workers being unnecessarily prevented from changing jobs. The exposure draft legislation goes considerably further.
For SMEs, who will be disproportionately affected, that is a significant and unwelcome development.
What was originally proposed?
The headline reform is a ban on non-compete clauses for employees earning at or below the Fair Work high-income threshold, currently $190,100.
The policy argument behind that proposal is that an employee should not ordinarily be prevented from using their general skills and experience or accepting a better job simply because a broad restraint appears in their employment contract. The Government has also argued that even an unenforceable restraint can have a ‘cooling’ effect because an employee may not have the resources or appetite to challenge it in court.
However, the exposure draft is no longer concerned only with preventing employers from stopping employees taking another job. It also proposes significant restrictions on other restraints, including co-worker non-solicitation clauses and cascading restraints.
For SMEs, those additional reforms may be more concerning than the proposed non-compete ban itself.
Freedom to leave – or freedom to take the team?
There is an important distinction between preventing an employee from competing and preventing that employee from actively recruiting their former colleagues.
The first directly restricts the employee’s ability to work. The second does not prevent either the departing employee or their former colleagues from changing jobs. It merely seeks to prevent the departing employee from actively using relationships developed during their employment to recruit the former employer’s workforce.
Take the Government’s own example of a hairdresser.
The argument is easy to understand from the employee’s perspective. Why should a hairdresser be prevented from leaving one salon and working for another, or from setting up a business of their own?
However, look at the same example from the other side.
My hairdresser employs three staff. If one of them leaves and opens a salon next door, she has lost 25% of her workforce. That is competition, and ordinarily she must live with it.
But what if that employee can also actively recruit one or both of her former colleagues to join the new salon?
Suddenly, the original business may have lost half or three-quarters of its workforce. And those employees may have access to suppliers and longstanding relationships with the salon’s customers, developed while working in the business.
For a government department, the departure of three employees is unlikely to make much difference. For a large corporation, it may be readily absorbed. For a four-person hairdressing salon, it could threaten the business itself.
This illustrates an important distinction that risks being lost in the debate.
There is a strong argument that employees should be free to leave their jobs and compete with their former employers. However, it does not necessarily follow that a departing employee should also have an unrestricted right to actively recruit the workforce their former employer has assembled, trained and paid.
Is salary really the right dividing line?
The proposed $190,100 threshold also presents difficulties for SMEs.
Remuneration is not necessarily a good measure of the commercial risk associated with an employee.
A salesperson earning $150,000 might manage customers responsible for a substantial proportion of a small business’s revenue. A technical employee might have access to valuable know-how. A manager might supervise most of the firm’s workforce.
Conversely, a considerably higher-paid employee in a large organisation might have relatively little customer contact or access to sensitive information.
The threshold provides certainty, but SMEs may reasonably question whether salary should determine whether a business is entitled to protect a legitimate commercial interest.
What will employers do instead?
This may be one of the unintended consequences of the reforms.
If businesses can no longer rely upon some of the contractual protections they have traditionally used, they will need to consider other ways of protecting themselves.
That may include stronger confidentiality and intellectual property arrangements, tighter controls over access to commercially sensitive information and improved procedures when employees leave.
Businesses may also reconsider how workforces are structured.
In appropriate circumstances, employers may enter genuine independent contractor arrangements that may provide greater flexibility for specialist or project-based work or consider technological alternatives to employees…enter AI.
The broader point is that restricting one form of contractual protection does not eliminate the commercial risk employers are seeking to manage. It may simply cause businesses to find different ways of managing it.
These reforms have not yet passed into law, but that does not mean you should wait until they are. Call us on 1300 654 590, email us, or make a booking with our employment law team to discuss how you can proactively prepare for change.
Cascading restraints are also under threat
Australian employment agreements commonly use cascading restraints specifying alternative periods, geographical areas or activities. This allows the Court to determine which combination, if any, is reasonable. That after all, is the job of the Court.
Reasonableness is highly fact-specific.
An SME entering an employment agreement today may have considerable difficulty predicting precisely what duration or geographical scope a court will regard as reasonable several years later when the employee actually leaves.
Removing cascading provisions may therefore provide employees with greater certainty, but it may also make it harder for employers to draft a restraint that will ultimately survive judicial scrutiny.
What should employers do now?
Businesses should not simply delete existing restraint provisions.
However, employers should recognise that since the reforms now under consideration extend considerably beyond the proposal to ban non-competes for employees below the high-income threshold, it is a good time to identify what the business is actually trying to protect.
Which employees have access to genuinely confidential information? Who controls important customer relationships? Who has access to pricing, tenders or intellectual property? Which managers could realistically take a significant part of the team with them if they left?
Employers should then consider whether their existing contracts and business practices adequately protect those interests if traditional restraints become less readily available.
SMEs have until 2 October to have their say
These reforms are not yet law.
The Government released its exposure draft legislation on 7 September 2026 and is accepting submissions until 2 October 2026.
Importantly, the Government is specifically seeking feedback on the proposed ban on co-worker non-solicitation clauses and on appropriate exemptions and safeguards to protect legitimate business interests.
That means there is still an opportunity to influence the final legislation.
How we can help
If you employ staff, we can help you review your employment agreements and restraint provisions in light of the proposed reforms.
We can identify the business interests that genuinely require protection and consider alternative measures, including confidentiality and intellectual property provisions, stand-alone Deeds of Confidentiality, information-management practices and appropriate workforce arrangements.
The objective is not simply to replace one restraint clause with another. It is to identify what is genuinely valuable to your business and put appropriate protections around it before an employee leaves.
Call us on 1300 654 590, email us, or make a booking with our employment law team for an initial discussion.
The information contained in this post is current at the date of editing – 28 September 2026.
