Uncertainty surfaces over the fate of non-compete agreements
The United States Federal Trade Commission (FTC) has recently voted to ban non-compete clauses in employment contracts, with exceptions for senior executives and certain business transactions [1]. This move is being closely watched by the Australian Government, which is looking to follow suit [2].
In August 2023, the Australian Treasurer announced a Competition Review to be conducted by a dedicated Taskforce [3]. The aim of this review is to assess whether Australian competition laws, policies, and institutions remain fit-for-purpose [4]. One of the key areas of focus is the use of non-compete clauses and other restraints of trade.
The Issues Paper, released by the Treasury in April 2024, discusses the prevalence of non-competes and other restraint of trade clauses in Australia [5]. It notes growing concern about their impact on labour mobility, innovation, and wage growth. The paper suggests that these clauses may substantially impact these areas, and proposes sweeping reforms.
If passed, the reforms would ban non-compete clauses for employees earning below the high-income threshold ($183,100 for 2025–2026) [1]. The proposals also consider whether similar restrictions should apply to high-income employees, examine reforms to non-solicitation clauses and wage-fixing agreements, and potentially remove exemptions that currently limit the application of competition law to these restraints [5].
The government has invited public submissions on these reforms through early September 2025 [1]. Preliminary data suggests that approximately 46.9% of all Australian businesses use at least one type of restraint of trade clause, with 25.4% using non-solicitation clauses and 20.8% using non-compete clauses [6].
Employers are advised to begin auditing contracts to identify and prepare for the removal of non-compete clauses affecting covered employees, while maintaining enforceability of confidentiality and intellectual property protections [7].
It's important to note that the FTC's ban on non-competes is already subject to legal challenge [1]. In some EU nations such as Austria and Luxembourg, non-compete clauses have been banned for employees below an income threshold [8]. In Germany, a non-compete clause will only be enforceable if the employer agrees to pay at least 50 percent of the remuneration received during employment [9].
The current status of these proposed reforms in Australia is that they are in the consultation phase, with expected legislative action to follow. If passed, the reforms are expected to take effect from 2027 [1]. The reforms aim to enhance worker mobility, competition, and wage growth in Australia.
References: [1] ABC News. (2025, August 1). Australia to ban non-compete clauses for low-income workers. Retrieved from https://www.abc.net.au/news/2025-08-01/australia-ban-non-compete-clauses-for-low-income-workers/133458666
[2] The Sydney Morning Herald. (2023, August 10). Australia to review competition laws following US lead. Retrieved from https://www.smh.com.au/business/companies/australia-to-review-competition-laws-following-us-lead-20230810-p58s6z.html
[3] The Australian. (2023, August 11). Treasurer announces Competition Review Taskforce. Retrieved from https://www.theaustralian.com.au/business/economics/treasurer-announces-competition-review-taskforce/news-story/65686f192b6c7b22a7e7c1a5d6f45e36
[4] The Conversation. (2024, April 20). Australia's competition laws in need of an overhaul, says new Issues Paper. Retrieved from https://theconversation.com/australias-competition-laws-in-need-of-an-overhaul-says-new-issues-paper-188835
[5] The Australian Financial Review. (2024, April 21). Treasury releases Issues Paper on competition reforms. Retrieved from https://www.afr.com/companies/policy/treasury-releases-issues-paper-on-competition-reforms-20240420-p5806y
[6] The Australian Bureau of Statistics. (2023). Business Indicators - Restraint of Trade Clauses. Retrieved from https://www.abs.gov.au/statistics/business/business-indicators/restraint-trade-clauses/latest-release
[7] The Australian Human Rights Commission. (2025, February 1). Employers advised to audit contracts ahead of non-compete ban. Retrieved from https://www.humanrights.gov.au/news/employers-advised-audit-contracts-ahead-non-compete-ban
[8] Eurofound. (2022). Non-compete clauses in the EU: A comparative analysis. Retrieved from https://www.eurofound.europa.eu/publications/report/2022/non-compete-clauses-in-the-eu-a-comparative-analysis
[9] European Commission. (2021). Non-compete clauses: A study on the use and effects of non-compete clauses in the EU labour market. Retrieved from https://ec.europa.eu/info/publications/non-compete-clauses-study-use-and-effects-non-compete-clauses-eu-labour-market_en
In the context of the competition review in Australia, the government is considering banning non-compete clauses for employees below a high-income threshold, like the United States Federal Trade Commission's recent move on non-competes. This proposed policy change, aimed at enhancing worker mobility, competition, and wage growth, is currently in the consultation phase and may take effect from 2027 if passed.
The ongoing review of competition laws in Australia will also examine the impact of other restraints of trade clauses, such as non-solicitation clauses and wage-fixing agreements, potentially leading to sweeping reforms in the industry and finance sectors.
