If you run a small business and your employment contracts include a clause stopping staff from joining a competitor after they leave, a significant change is on its way. The Federal Government has announced a ban on non-compete clauses for most workers, due to take effect from 2027. For business owners on the Central Coast who rely on these clauses to protect their client base and know-how, now is the time to understand what is changing and what will still be allowed.
What is a non-compete clause?
A non-compete clause is a term in an employment contract that stops a departing employee from working for a competitor, or starting a competing business, for a set period and within a set area after they leave. It is one type of restraint of trade — a broad category of contractual restrictions designed to protect a business after the working relationship ends.
Restraints typically come in three forms:
- Non-compete — preventing the employee from working for a rival or setting up in competition.
- Non-solicitation of clients — preventing them from approaching the business’s customers.
- Non-solicitation of staff — preventing them from poaching former colleagues.
These clauses exist because a business has legitimate things worth protecting: confidential information, trade connections, and the goodwill built up with clients. The law has long allowed reasonable restraints for that purpose. What is changing is how far that will be permitted to go.
What the Government has announced
As part of the 2025–26 Federal Budget, the Government announced it will introduce a statutory ban on non-compete clauses for workers earning below the high-income threshold. The reform is intended to operate from 2027, prospectively, giving businesses and workers time to adjust.
The reasoning behind the change is about job mobility and wages. The Government’s position is that millions of Australian workers — including people in lower-paid roles such as hospitality, childcare and hairdressing — are bound by non-compete clauses that make it harder for them to move to a better-paid job. By removing those restraints for most workers, the policy aims to lift wages and encourage competition.
Alongside the non-compete ban, the Government has signalled it will also act against:
- “No-poach” agreements — arrangements between businesses not to hire each other’s staff.
- Wage-fixing arrangements — agreements between businesses to cap pay or conditions, made without the affected workers’ knowledge.
These broader changes are proposed to be delivered through amendments to the Competition and Consumer Act 2010 (Cth), which currently exempts most employment arrangements from competition law, and the Fair Work Act 2009 (Cth).
The income threshold — and a moving figure
The ban is tied to the high-income threshold under the Fair Work Act. This is an important detail, because the threshold is indexed and changes on 1 July each year.
When the reform was announced in March 2025, the threshold sat at $175,000. From 1 July 2025 it rose to $183,100 for the 2025–26 financial year. By the time the ban commences in 2027, the figure will almost certainly be higher again. The practical point for a small business is that the ban is aimed at the bulk of ordinary workers, not senior executives. Employees earning above the threshold of the day are expected to fall outside it.
This is one reason it is worth checking the current figure rather than relying on a number you saw in a headline. The Fair Work Ombudsman publishes the current threshold, and the Treasury maintains a page on the non-compete reforms as they develop.
The exception that matters most: selling a business
Here is the point that every business owner should hold onto. The proposed ban is not intended to extend to non-compete restraints connected with the sale of a business.
This distinction is significant. When you buy a business, a large part of what you are paying for is its goodwill — the loyal customers, the reputation, the trade connections. A restraint preventing the seller from immediately opening a competing operation across the road is fundamental to protecting that value. Removing it would make businesses far harder to sell. The reform, as announced, leaves these sale-of-business restraints alone.
So if you are buying or selling a business, the restraint clauses in that contract are a different question from the employment-contract clauses the ban targets. We cover the broader process in our guide to buying an existing business in NSW, and the restraint terms are one of the things worth getting right at that stage.
Where this leaves NSW restraint law today
It helps to understand the current position, because it does not change overnight. NSW is unusual in Australia in having its own statute on the subject — the Restraints of Trade Act 1976 (NSW). Under the general law, a restraint of trade is presumed void as against public policy unless it is reasonable, and a court will only enforce it so far as it protects a legitimate business interest and goes no further than necessary. The NSW Act gives courts a degree of flexibility to read down an overly broad restraint rather than strike it out entirely.
In other words, even now, a non-compete is not automatically enforceable just because it is written into a contract. It must be reasonable in its duration, its geographic reach, and the activity it restricts. A clause that bars a former employee from the entire industry, nationwide, for five years is unlikely to survive a challenge.
The coming reform sits on top of this. From 2027, for workers below the threshold, the question of reasonableness will not even arise for non-compete clauses — they are simply to be banned. For higher earners and for sale-of-business restraints, the existing principles continue to apply.
Practical first steps for business owners
The reform is still working through consultation and is not yet law, but preparation now will save trouble later. Sensible steps include:
- Audit your contracts. Identify which roles currently carry non-compete clauses, especially employees likely to sit below the threshold.
- Rethink how you protect your business. Confidentiality clauses and protection of genuine trade secrets are not the target of the ban. These remain valuable tools.
- Strengthen retention. If you cannot lock staff in by contract, culture, development and fair pay become the real levers for keeping good people.
- Treat business-sale restraints separately. If you are buying or selling, get the restraint terms drafted carefully — they are outside the ban and remain enforceable if reasonable.
If you are concerned about how staff movement affects your business, it is also worth understanding the wider employment law framework, including adverse action by an employer, which can intersect with how and why employees are managed and moved on.
The Bottom Line
A ban on non-compete clauses for most workers is coming from 2027, and it will reshape how small businesses protect themselves when staff leave. The clauses you can no longer rely on are the ones aimed at ordinary employees below the income threshold. The protections that survive — confidentiality, reasonable client non-solicitation in some cases, and restraints tied to the sale of a business — remain important. The businesses that fare best will be the ones that review their contracts early and adapt rather than wait.
If you have questions about your employment contracts, restraint clauses, or a business sale or purchase, don’t hesitate to get in touch with one of our business lawyers on the Central Coast. We can help you prepare for the change well before it takes effect.
