Non-compete clauses are changing, and most employment contracts will not survive.

Treasury has released the exposure draft of the Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026. Submissions close on 2 October 2026. The changes are expected to commence on 1 July 2027.

What the draft does

• Bans non-competes for employees earning below the high income threshold ($190,100 from 01/07/2026), tested at termination rather than at the point of hire

• Bans any clause preventing a departing employee from soliciting or recruiting co-workers, for every employee, regardless of what they earn

• Removes cascading restraints, being the layered fallback drafting most contract templates currently rely on

• Narrows the purposes for which a surviving restraint can be justified, and requires the restraint to be reasonable in scope on top of that

  
  

Why this is a concern

The safety net is potentially gone. Drafting a wide restraint and relying on a court to read it back to something narrower has been standard practice for years. Under the draft, the scope written into the contract is the only scope on offer. A restraint that reaches too far fails outright rather than dropping back to something workable.

Including a banned clause is also no longer just a validity problem. Under the current drafting, putting a prohibited non-compete or co-worker non-solicitation term into a new contract carries its own penalty exposure, separate from the clause being unenforceable. So does relying on, or threatening to enforce, a restraint the legislation has already switched off.

Existing signed contracts and new contracts are treated differently under the draft. That difference changes what you need to do, and when.

Where employers are most exposed

• Precedent employment contracts, offer letters and promotion documents still carrying the old restraint wording

• Senior employees whose pay, hours or role have shifted since they signed

• Any restraint being relied on or enforced against a former employee

• Confidentiality and intellectual property clauses that were only ever doing part of the job, on the assumption the restraint would do the rest

  
  

What we are telling clients

There are two questions to settle before commencement. Which of your templates contain a clause that will be void or prohibited, and which of your key people are protected by a restraint that will not survive the new tests. The answers drive everything else, including how much more weight your confidentiality and IP clauses now need to carry.

The draft is not final. Submissions close on 2 October 2026 and the reasonableness provisions are among the more likely areas to shift before the Bill is introduced.

Get in touch

If you want your employment contract templates assessed against the draft, or advice on a specific restraint you are relying on, contact our Employment team.

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