The Future of Non-Compete Clauses: How Can Your Businesses Protect Confidential Information?

Non-compete clauses have long been used by employers to prevent departing employees from joining competitors or starting competing businesses. However, proposed reforms may significantly restrict their use, requiring businesses to rethink how they protect their confidential information and client relationships.

Under the current Australian common law position, post-employment restraints are not automatically enforceable. Employers must demonstrate that a restraint is reasonable and no more than necessary to protect a legitimate business interest, such as:

• Confidential information and trade secrets;
• Customer relationships and goodwill;
• Sensitive commercial strategies; and
• Certain workforce stability concerns.

Where a restraint is broader than necessary in terms of time, geography, activities or the employees to whom it applies, a court may refuse to enforce it. In NSW, the court may also consider whether the restraint can be read down under the Restraints of Trade Act 1976 (NSW).

Proposed Reforms

On 7 September 2026, the Federal Government released draft legislation proposing to ban non-compete clauses for Australian workers earning below the high-income threshold, which is currently $190,100 for the period 1 July 2026 to 30 June 2027. If enacted, the reforms would amend the Fair Work Act 2009 (Cth) (FWA) so that a non-compete term has no effect where it prevents, restricts or adversely affects an employee from commencing subsequent employment or being involved in another business or undertaking after their employment ends.

The Government is also consulting on related reforms, including banning clauses which prohibit solicitation, poaching and wage-fixing arrangements between businesses, cascading restraint cluses, and appropriate exemptions and safeguards to protect legitimate business interests. For employees above the high-income threshold, post-employment restraints may still be available but should be limited to what is reasonable and necessary to protect legitimate business interests, including confidential information and client, customer or professional relationships obtained through employment.

The draft legislation remains subject to consultation and has not yet passed Parliament. Submissions on the exposure draft are due to close on 2 October 2026, with the reforms intended to take effect from 2027 following consultation and the passage of legislation. Employers should monitor the final form of the legislation, including commencement dates, transitional arrangements, penalties, exemptions and any safeguards for legitimate business interests.

In NSW, restraints of trade remain subject to the Restraints of Trade Act 1976 (NSW), which provides that a restraint is valid to the extent that it is not against public policy. This means NSW courts may, depending on the drafting and circumstances, sever or read down an otherwise excessive restraint rather than treat the entire clause as void. However, any Commonwealth reforms that render particular non-compete or restraint terms ineffective would need to be considered alongside the NSW position.

Alternative Ways to Protect Business Interests

Businesses should not assume that a traditional non-compete clause will remain available or effective for all employees. Considering the current reform proposals, alternative protections should be targeted, proportionate and supported by practical information-security measures. These may include:

Confidentiality Clauses

Confidentiality provisions are often the most effective protection for businesses. These clauses can prohibit employees from using or disclosing trade secrets, client information, pricing or financial information, business strategies, intellectual property and other genuinely confidential material.

 

Unlike non-compete clauses, confidentiality obligations focus on protecting information rather than restricting employment opportunities. They are therefore likely to remain an important tool, provided they are clearly drafted, targeted to genuinely confidential information and supported by practical controls over access, storage and return of information.

Non-Solicitation Clauses

Client non-solicitation provisions may continue to play a role where they are directed at protecting client, customer or professional relationships that the employee developed through employment, and where they go no further than is reasonable and necessary. Employers should separately review any clauses that restrict the solicitation or recruitment of co-workers, as the reform proposals contemplate a broader prohibition or restriction on co-worker non-solicitation terms.

Non-Dealing Clauses

A non-dealing clause restricts a former employee from conducting business with specific clients, regardless of who initiates the contact. Considering the reform proposals, these clauses should be confined to relationships the employee had access to or developed through employment and limited in duration and scope, so they do not operate as a practical non-compete for employees below the high income threshold.

Intellectual Property Protections

Employment agreements should clearly address ownership of intellectual property created during employment, including documents, reports, software, code and marketing materials. Strong intellectual property provisions can help ensure key business assets remain protected when employees move on.

Avoiding Cascading Restraints

The reform proposals include consultation on banning cascading restraint clauses, which commonly set out multiple alternative periods, geographic areas or activities to preserve enforceability. In NSW, where restraints may otherwise be read down under the Restraints of Trade Act 1976 (NSW), employers should still avoid relying on broad fallback drafting, particularly if the Commonwealth reforms proceed.

For employers to ensure ongoing compliance with these measures, they should also consider contractual protections with practical safeguards, such as:

• Restricting access to sensitive information;
• Implementing and maintaining cyber security controls;
• Integrating formal exit interview procedures and ensuring they are followed;
• Processes for the return of company property; and
• Ongoing confidentiality training.

Impact on Recruitment and Retention

A reduction in the use of non-compete clauses will likely increase competition for skilled workers, making it easier for employees to move between employers. While this may create retention challenges, it also presents opportunities for businesses seeking to attract talent.

As a result, employers may need to place greater emphasis on retention strategies, including:

• Competitive remuneration;
• Flexible work arrangements;
• Career development opportunities; and
• Positive workplace culture.

In many cases, employee engagement and workplace satisfaction are more effective retention tools than restrictive contractual provisions.

Key Takeaways for Employers

Although the reforms remain in exposure draft form and may change before enactment, employers should begin preparing now. In particular, employers should:

• Audit employment contracts to identify non-compete, co-worker non-solicitation, non-dealing, client non-solicitation and cascading restraint clauses.
• Identify employees whose annualised full-time equivalent earnings fall below the FWA high income threshold and consider whether existing non-compete clauses would be ineffective if the Bill is enacted in its current form.
• Review any co-worker non-solicitation clauses, noting that the proposed prohibition is not limited to employees below the high income threshold.
• Replace broad restraints with tailored confidentiality, intellectual property, client protection and information security obligations.
• Consider how recruitment and retention strategies may need to change if non-compete clauses become unavailable for most employees.
• Monitor the progress of the reforms, including whether the final legislation differs from the exposure draft, commencement dates, transitional arrangements, penalties, exemptions and safeguards for legitimate business interests.

We’re with you

At Chamberlains Law Firm, we help businesses navigate the complexities of termination, employment and contractor agreements, workplace compliance and dispute resolution. Our workplace lawyers can review your contracts, advise on termination risks and, if necessary, represent you in disputes. Whether you need updated templates, compliance advice or support managing a workplace dispute, our Workplace Law Team is here to help.