Non-compete reforms are proposed for 2027, and they could significantly change how SMEs protect staff and client relationships
Australian employers are likely set for a big reset on post-employment restraints and “labour market competition” rules. In September 2026, the Federal Government released draft legislation that would (if passed) do two major things:
- Limit or ban certain restraints in employment contracts (especially non-compete and co-worker non-solicitation provisions), and
- Treat some “no-poach” and “wage-fixing” arrangements between businesses as cartel conduct, with breaches potentially attracting serious penalties.
This article provides a practical overview for owners and managers in small to medium-sized businesses; what non-compete reforms and other reforms are proposed, what could they mean day-to-day, and what you can do now to minimise disruption and protect your business.
1) What’s actually being proposed?
The draft Bill is titled the Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026. It proposes changes to both:
- The Fair Work Act 2009 (Cth) (employment contract restraints), and
- The Competition and Consumer Act 2010 (Cth) (business-to-business conduct affecting labour markets).
It’s still draft legislation, so the details may change. But the Government’s intention is clear: make it easier for people to move jobs and harder for businesses to “lock up” talent through contract terms or behind-the-scenes agreements.
2) Non-compete clauses: a ban for many employees
What is a “non-compete term” under the draft?
In plain terms, it’s a clause that stops an employee from working for a competitor or starting a competing business after they leave.
Who would be covered by the ban?
If the draft becomes law, non-compete terms would be prohibited for employees whose annual earnings are at or below the Fair Work “high income threshold”.
- The high income threshold is currently $190,100 per annum
- The draft commentary suggests the threshold will relate to base earnings, which potentially impacts those roles with a lower base plus high commission.
- The draft also indicates the ban would apply to casual employees and pieceworkers regardless of income.
It’s important to note that the draft wording suggests that an employer may contravene the law simply by including a prohibited non-compete term in an employment arrangement, regardless of whether they ever seek to enforce it.
3) Co-worker non-solicitation: proposed outright ban
Many SMEs also rely on clauses that say something along the lines of: “If you leave, you can’t poach our staff.” Under the draft Bill, these types of provisions would be banned for all national system employees, regardless of income.
The definition is broad and will potentially cover restrictions on recruiting people who work for the business in many capacities, not just employees (e.g., it potentially also relates to contractors, labour hire workers, apprentices and volunteers).
Practical takeaway: assume co-worker non-solicitation provisions will no longer be possible and shift your focus to retention, culture, and client relationship protections.
4) “Cascading” restraints: the drafting style many employers use may be prohibited
It’s common for restraint clauses to be drafted with multiple fall-back options (for example, 12 months / 9 months / 6 months; or 10km / 5km / 2km). This is often called a cascading restraint.
The draft Bill proposes to prohibit cascading alternatives in post-employment restraints. If passed, the practical impact of the proposed legislation is significant. Where you are permitted to include restraints:
- You won’t be able to rely on a “menu” of options and hope a court enforces one, and
- If a provision is drafted as a cascading restraint, the whole restraint may have no effect.
So, restraint drafting becomes more of a “one shot” proposition: it needs to be tailored, defensible, and proportionate from the outset.
5) What restraints might still be allowed?
While the draft reforms do not propose to do away with all forms of post-employment restraints, there is a clear shift away from broad “restraint of trade” provisions toward a more defined set of protectable interests.
For private sector employers for example, you will likely still be able to include provisions to:
- Protect confidential information obtained through employment, and
- Protect customer/client/professional relationships gained through employment.
6) Competition law changes: no-poach and wage-fixing could be treated as cartel conduct
This is a part of the draft legislation that many employers might miss, and it’s the part with the scariest penalties.
The draft Bill also proposes amendments to the Competition and Consumer Act so that certain:
- No-poach provisions (agreements between businesses not to recruit each other’s staff), and
- Wage-fixing provisions (agreements between businesses to set or cap pay/conditions)
are treated as cartel provisions and, as a result, subject to relevant significant penalties.
There are indications that there will be exceptions to these requirements (in relation to, for example, secondments, labour hire arrangements and professional sporting leagues), though we’ll have to await the final detail of the legislation before that’s completely clear.
Practical takeaway: if your business has any “gentlemen’s agreements” with other businesses about not hiring each other’s people, whether formal or informal, this reform will likely impact the legality and enforceability of those arrangements.
7) Timing and transition
The draft legislation contemplates commencement sometime in 2027.
We’ll need to await final version of the legislation before being absolutely clear on the details of transition arrangements, though it appears likely at this stage that key provisions will apply to new arrangements and any employment arrangements that are amended after commencement of the provisions.
8) What this could mean for SMEs (practical implications)
Here’s how we’d expect SMEs to be most impacted:
- Less ability to rely on “standard” non-compete clauses for most employees.
- More pressure on onboarding/offboarding processes, because you’ll need to protect client relationships and confidential information through operational controls, not just contract wording.
- Higher risk in commercial contracts and industry relationships, especially where businesses collaborate or share staff.
- More movement in the market (which can be good and bad): easier hiring, but also easier losing talent.
9) Practical steps you can take now
We’d suggest that you don’t wait for the law to pass to begin to counter the impact. In our view, the best approach is to begin to make a shift from “restraint-based protection” to “systems-based protection.”
Step 1: Review your current contracts and templates
- Identify which of your workers have non-compete, co-worker non-solicitation, and cascading restraint provisions.
- Flag roles that are under the high income threshold (including roles where base salary is under the threshold even if total earnings are high).
- Check whether your restraints are trying to protect the right thing (confidential info and/or client relationships) or are really about workforce stability.
Step 2: Strengthen confidentiality protections (without overreaching)
- Ensure your confidentiality clauses are specific (what is confidential, how it’s handled, what must be returned).
- Consider tighter access to information: limit who can see pricing, proposals, client lists, and strategic plans.
- Consider more effective use of controls: permissions, CRM access rules, device management, and clear exit checklists.
Step 3: Better protect client relationships
- Try to reduce occurrences of client relationships that are single worker dependent
- Document key client knowledge in your CRM so it’s not sitting in one person’s head.
- Consider client non-solicitation clauses (these may remain possible but will need to be reasonable and necessary).
Step 4: Review notice periods and gardening leave
If non-competes are off the table for many employees, employers may need to consider relying more on:
- Longer notice periods for key roles, and
- Gardening leave provisions (where the employee remains employed and paid but is directed not to attend work).
This can give you time to transition clients, lock down systems access, and stabilise the team.
Step 5: Re-think incentives and retention
If you can’t stop people leaving, double your efforts to make it less attractive to leave:
- Clear progression and development plans
- Retention bonuses or deferred incentives (carefully designed)
- Strengthening leadership capability and impact (eg. more regular and effective 1:1s, improve recognition, ensure manageable workloads)
- Review any commercial agreements, particularly as they relate to staff movements: joint ventures, outsourcing, franchise, labour hire, secondments.
- Train leaders: no “agreements” with other businesses about not hiring, not approaching staff, or keeping wages aligned.
- Be wary about industry groups/interactions: benchmarking is one thing, agreeing future pay arrangements is another.
Final word
These reforms are still in draft form, and the detail may change. But for SMEs, the practical message is clear: assume non-competes and co-worker non-solicits will be much harder (or impossible) to rely on, and start strengthening your operational protections now.
If you’d like further information or assistance reviewing your current contracts and associated arrangements, reach out.
Note that this is general information only. It is not formal or legal advice. Information is current and we believe accurate at the time of publication – 14/10/2026. Information is based on draft legislation and may not include all details of what’s proposed.
