In the 2025-26 Federal Budget, the Labor Government announced its plans to ban restraint of trade, (or non-compete) clauses for workers earning under the Fair Work Act’s high‑income threshold.

This reform is another step – following the restriction on the use of fixed term contracts and the prohibition on pay secrecy clauses – that improves the position of employees in employment contract negotiations.

The Economic and Social Case for Change

Non‑compete clauses are often justified as necessary to protect sensitive business information. However, as Minister Leigh pointed out, Australia already has robust tools such as intellectual property laws and confidentiality agreements in place. Instead of protecting legitimate business interests, these clauses have become almost a standard inclusion in employment contracts – regardless of the position or the employee’s level of exposure to sensitive commercial information or customer connections.

The consequences of the widespread inclusion of these clauses, including reduced wage growth, with research indicating that workers bound by non‑compete clauses earn approximately 4% less than their unencumbered counterparts—the equivalent of about $2,500 a year for the typical worker. Restraint of trade clauses can also hinder career progression, with employees bound by such clauses either being unable to move into their desired role without the threat of legal action or being forced to run down the clock on their restraint clause (taking side steps or time off from the workforce until their restraint expires).

While there are undoubtedly instances of employers suffering economic harm as a result of an employee jumping ship to work for a competitor – and a quick search of the Federal Circuit Court archives reveals some truly shocking behaviour by employees – employers retain the ability to pursue breaches of confidentiality clauses through contract claims and/or under s.183 of the Corporations Act.

The Government’s Plan

Effective from 2027, the reform will ban non‑compete clauses for workers earning less than the high income threshold ($183,100/annum for the 2025-26 financial year).

This ban will apply to approximately 9 out of 10 employees covered by the Fair Work Act, releasing a vast majority from unnecessary contractual restrictions.

The Government continues to consult with industry experts, workers, and legal professionals, however, it remains committee to a freer and more competitive labour market. For the everyday worker, the promise is simple – the freedom to work without undue constraint and to build a future unbound by outdated limitations.

Because competition policy is not just about prices and productivity. At its heart, it is about freedom and fairness. It is about unbinding workers, unbinding ideas, and unbinding the potential of Australia’s future. Unlike a non-compete clause, that’s something we should all be free to sign up to.

THE HON ANDREW LEIGH MP — Assistant Minister for Productivity, Competition, Charities and Treasury