As part of the 2025 Fed­er­al Bud­get, the gov­ern­ment has announced a pro­hi­bi­tion on non-com­pete claus­es for employ­ees earn­ing less than the high income thresh­old (present­ly $175,000 per annum). 

It is planned that the change will take effect in 2027. There is noth­ing for employ­ers to do at the moment, although both busi­ness and employ­ees should keep a watch­ing brief on the imple­men­ta­tion of this announce­ment. Fur­ther detail will pre­sum­ably be pro­vid­ed dur­ing the imple­men­ta­tion process. 

A few ini­tial observations:

  1. Much of the com­men­tary from pro­po­nents of pro­hi­bi­tions on non-com­pete claus­es (and oth­er forms of post-employ­ment restraint) comes from econ­o­mists who pay lit­tle regard to the decades of nuanced case law devel­oped in supe­ri­or courts that has sought to care­ful­ly bal­ance the legit­i­mate busi­ness inter­ests of employ­ers with the right of employ­ees to earn a liv­ing. Instead, the com­men­tary focus­es on anec­dotes about out­lier employ­ers who seek to impose absurd­ly oner­ous claus­es on their employ­ees that would be giv­en very short shrift if ever test­ed in court, where the well-estab­lished legal prin­ci­ples the com­pe­ti­tion econ­o­mists large­ly choose to ignore would be applied.

  2. That said, the impo­si­tion of non-com­pete claus­es on less senior employ­ees that would nev­er suc­cess­ful­ly be enforced in court can still have a chill­ing effect. Notwith­stand­ing the legal posi­tion, such employ­ees may under­stand­ably be con­cerned that if they work for a com­peti­tor they will be sub­ject to lit­i­ga­tion or oth­er adverse out­comes, par­tic­u­lar­ly when they start receiv­ing let­ters of demand from employ­ers or their lawyers. The high income thresh­old is a sen­si­ble (if imper­fect) way of estab­lish­ing the cohort to whom non-com­pete claus­es should not apply, as employ­ees below that thresh­old are (as a gen­er­al propo­si­tion) unlike­ly to have had the access to con­fi­den­tial infor­ma­tion and/​or cus­tomer con­nec­tions to sup­port enforce­ment of the restraints in court. As such, the pro­hi­bi­tion oper­at­ing at that income lev­el will large­ly repli­cate what would ulti­mate­ly be decid­ed in court (spar­ing the stress and expense of litigation).

  3. There is a mis­sion­ary zeal behind these reforms that may mean it does not stop at pro­hibit­ing non-com­pete claus­es for those under the high income thresh­old but extends the ban to all employ­ees, even senior exec­u­tives with sub­stan­tial access to con­fi­den­tial infor­ma­tion and cus­tomer con­nec­tions. Lib­er­at­ing Chief Exec­u­tive Offi­cers to work for their direct com­peti­tors the day after their employ­ment ends seems like an odd pol­i­cy hill to die on, but that seems to be where this is head­ing. Employ­ers will then use mech­a­nisms such as non-solic­it claus­es (to the extent they will still be per­mit­ted), extend­ed notice peri­ods and gar­den leave to pro­tect their busi­ness interests. 

If you would like to repub­lish this arti­cle, it is gen­er­al­ly approved, but pri­or to doing so please con­tact the Mar­ket­ing team at marketing@​swaab.​com.​au. This arti­cle is not legal advice and the views and com­ments are of a gen­er­al nature only. This arti­cle is not to be relied upon in sub­sti­tu­tion for detailed legal advice.

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