By Bianca Lopez, Senior Associate

Last month, the Federal Government released its budget for the 2025/6 fiscal year. With the release of the budget came a pledge by the Labor Government to prohibit non-compete clauses in employment contracts for employees who earn less than the high-income threshold (currently $175,000 annual income) by 2027, if the Labor Government is re-elected in the upcoming Federal Election.

The latest in a string of workplace reforms to impact Australian businesses and the workforce, the aim behind this latest proposed shift in the employment landscape is understandable on the face of it – it seeks to ensure employees are not unfairly restricted from earning a living, by reducing the limitations that apply when employees leave their current employment to either pursue better-paying opportunities or to start their own businesses. The Federal Government also noted their intention to “close loopholes” in competition law that: (a) currently permit businesses to make anti-competitive arrangements that fix wages and limit an employee’s pay and conditions without the consent of the employee; and (b) currently permit restraints, such as no-poaching provisions in employment contracts or no-poach agreements between competitors, that prevent competitors from recruiting each other’s employees.

This announcement impacts the relationship between employers and employees across the board, however particularly in industries where intellectual property and proprietary information are fundamental to business operations, such as is the case across the media, advertising and creative industries.

A quick recap of non-compete clauses

Before we dive into the details and possible implications of this announcement, it is important to first understand what exactly is meant when referring to “non-compete” clauses and why they might be included in employment agreements.

By way of background, non-compete clauses are provisions that employers tend to include in an employment contract that restrict an employee from either a) working for a competitor of the employer, or b) consulting for, buying into, or starting a competing business to the employer, within a specified timeframe and specified geographical area, following the end of their employment period with the employer. We frequently see these clauses drafted in “cascading” fashion, to apply the greatest restraint legally allowable, to provide the greatest protection for the employer. Most of the time these provisions are not negotiated at the time an employee signs an agreement, and not by the employees most likely to be impacted by the changes – i.e. while senior executives may be more comfortable with negotiations on these issues, they would likely be above the high income threshold.

The understandable intention behind non-compete clauses is that they are necessary to protect a company’s intellectual property, proprietary information, trade secrets and client relationships, as well as any other sensitive information, all of which are so heavily impacted by employee movement and employee relationships. After all, the employers pay heavily to recruit and train employees, and if those employees are able to simply move to direct competitors without any friction, this puts the employer’s business at risk.

That is, employers want the comfort of knowing that an employee can be prevented from moving directly to a competitor and using information gained by the employee as part of their day-to-day responsibilities at their previous company to the competitor’s advantage, without any restriction.

While these changes may therefore cause initial concern, it is important to understand how non-compete clauses work in practice. It is one thing for an employment agreement to contain a non-compete clause, which has long been standard practice. However, overly onerous or extensive post-employment restraints would be generally considered unenforceable by the courts unless the employer can demonstrate that the restrictions are no broader than what is reasonably necessary to protect the company’s legitimate business interests. This will also be with consideration to the role and seniority of the employee – as in, what may be reasonable for a high-level executive in terms of post-employment restraints may not be reasonable for an entry-level account executive.

So why the sudden push from the Federal Government?

It is important to note that this pledge made during the Federal Budget will only become law if the Labor Government is re-elected at the upcoming Federal Election, and they would be looking to roll this out by 2027.

The Federal Government has cited several reasons driving this announcement, all of which appear to refer to balancing the rights of employees with the needs of the employers. One of the primary motivators behind the proposed ban is to create a more dynamic job market that can foster job mobility and innovation, with the Federal Government arguing that non-compete clauses are unduly stifling for employees. Instead, the Federal Government considers that employees should not be limited to seek new opportunities within their fields and should have the freedom to move from one company to another, as this can drive competition and foster innovation that results in benefits to not only the employees but also the companies and consumers.

The Federal Government also highlighted that employment contracts need to provide for greater fairness, given that non-compete clauses are often one-sided and impose potentially unreasonable restrictions on employees that are binding for lengthy terms following their departure from the company. While this may be the case upon first glance, we do again reiterate that unreasonable restrictions would likely be deemed unenforceable if called into question.

What does this mean for you?

While it remains to be seen whether the proposed reforms will become law, there are several practical steps that companies can take in the interim to ensure they are prepared and protected, given that non-compete clauses entered into today may no longer be enforceable after, for instance, 2027.

One of the most significant challenges that the media, advertising and creative industries may face will be in relation to the protection of client relationships. Where non-compete clauses may have been used as a tool to prevent employees from interfering with an existing client base, adapting to the ban will require employers to develop alternative strategies. These include relying on other tools, such as enhanced confidentiality obligations to ensure that proprietary knowledge and client details are protected, even after an employee leaves. Further, we have seen the market response following this announcement to be shining a light on employee training and retention programs. That is, given the shift in the employment landscape, it may be prudent to invest in employee engagement and focus on creating positive work environments and professional development opportunities, which may steer employees away from enticing offers from competitors.

At this stage, we are watching the space to see what is to come and will monitor any announcements following the Federal Election.

Contact us

Given the recent announcement and the upcoming Federal Election, we are currently in a waiting period to see what is going to occur in this space. During this time, it is important now more than ever to ensure that you are adequately protecting your company’s intellectual property and client relationships, outside of simply relying on any non-compete clauses that may be present in your employment agreements.

If you would like further information or advice on these proposed changes, or if you would like assistance with drafting additional documents, such as Confidentiality Deeds, or otherwise reviewing your existing templates, please contact one of our experts below.