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Global

Australia: Post-termination Restrictive Covenants Ban

By - - Employment contracts, Employment Law, Restrictive covenants

Australia’s Federal government is now consulting on draft legislation that proposes to ban non-compete clauses for low and middle-income employees.

The consultation is open until October 2nd, 2026 and employers are welcome to respond.

The proposed ban goes wider than expected and includes co-worker solicitation clauses and “cascading” drafting.  It also proposes significant penalties.

Summary of Main Points:
  • Non-competes for employees with annualised full-time equivalent earnings that do not exceed the high-income threshold, will be prohibited – for this purpose the earnings calculation will not include remuneration that cannot be determined in advance (e.g. bonus/commission payments).
  • Non-solicitation of co-workers will be prohibited, even for high income employees.
  • Non-solicitation of clients clauses will still be acceptable in certain situations.
  • Post employment restrictions may only be permitted to protect confidential information or the use of client connections acquired through the employment.  These will also need to be reasonable and necessary.
  • “Cascading” clauses will be prohibited – these are restraint clauses in employment contracts which impose different periods for different territories, reflecting local restraint rules.  
  • The proposals are to have retrospective effect – they will apply to restraint clauses entered into before as well as after the rules come into force.
Penalties

Penalties for breach will be AUD109,200 for a company or AUD21,840 and up to 10 times those amounts if the breach was intentional or reckless.

What Employers Should Consider

First, they should make sure they know which, if any, of their employment contracts have restraint clauses that will be prohibited when the rules change. They may wish to be ready to make changes to those contracts.

 Other protective options to consider:

  • Longer notice periods – allowing more time to manage a transition.
  • Gardening leave provisions that give the employer time to shore up client relationships. 
  • Clear and enforceable confidentiality and intellectual property clauses to protect key assets of the employer.  

This is a high-level general update only. Legal advice should be obtained on specific circumstances.
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