Non-Compete Clauses in Australia: The Law and the Ban

A non-compete clause in an Australian employment contract is currently governed by the common law doctrine of restraint of trade, and in New South Wales by a specific statute, while a federal proposal to ban non-compete clauses for most employees remains a draft released for consultation, not yet a law.

This article addresses non-compete and restraint of trade clauses in Australian employment contracts: the general common law test, New South Wales' specific statute, and the federal government's proposed, not yet enacted, ban. It does not cover a restraint of trade clause in the sale of a business or a partnership, which courts assess differently. For other Australian employment topics, see the Australian employment law hub.

The Common Law Test for a Restraint of Trade Clause

Outside New South Wales, whether a non-compete or other restraint of trade clause is enforceable is a matter of common law, not statute. Australian courts generally treat a restraint of trade as unenforceable unless the business relying on it can show the restraint protects a legitimate business interest, such as confidential information or client connections, and goes no further than reasonably necessary to protect that interest, considering both the parties' own interests and the wider public interest.

This is longstanding doctrine repeated across Australian legal commentary and applied in decisions of Australia's courts. This article states the test in general terms rather than attributing it to a particular case. Confirm the current leading authority with a lawyer or a case database before relying on a specific case name.

New South Wales: Two Separate Mechanisms, Not One

New South Wales, unlike the general common law position, has a dedicated statute. Its effect is often summarised as a court reading down an unreasonable clause, but the Restraints of Trade Act 1976 actually creates two distinct mechanisms.

Section 4(1) and (2) operate automatically, with no court application needed: "a restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not." This reverses the old common law all or nothing rule, which required a restraint to already be drafted in neatly severable clauses before a court could save the valid part. Under the Act, a court can cut an overbroad restraint down to its valid core even if it was not drafted with severability in mind, and this happens as a matter of law rather than on application.

Section 4(3) is a separate, discretionary court remedy. It is available only on application by the person subject to the restraint, meaning the restrained employee, not the employer relying on the clause, has to actively bring it, and only where the restraint's drafter manifestly failed to attempt to make the restraint a reasonable one. On such an application, the Supreme Court can invalidate the restraint altogether or narrow it further than section 4(1) and (2) alone would allow.

Two further points from the Act's own text matter for how it applies. Section 4(5) means an order under section 4(3) does not undo rights, including damages, that already accrued before the order takes effect. Section 3(1) means the Act only applies to a restraint created on or after its 1976 assent date, a point with little practical bite today but worth noting for how the Act describes its own scope.

Is the Federal Non-Compete Ban Already Law?

No. As of 28 September 2026, the federal government's proposed ban on non-compete clauses is an exposure draft open for public consultation, not a Bill before the federal Parliament and not a law in force.

The current figures come from a joint media release by Assistant Minister Andrew Leigh and Minister for Employment and Workplace Relations Amanda Rishworth, "Opening the door to better and higher paying jobs: banning unfair non-competes," released 7 September 2026. It states the government is releasing draft legislation to ban non-compete clauses for Australian workers under $190,100 a year, described as the Fair Work Act high income threshold. The exposure draft itself sets the line at annualised full-time equivalent earnings equal to or less than the high income threshold, which its Explanatory Memorandum puts at $190,100 for the year ending 30 June 2027, and it also covers every casual employee and pieceworker regardless of income. That figure updates an earlier $175,000 figure the government floated in its original March 2025 announcement; use $190,100 as the current proposed threshold.

The same 7 September 2026 release states the government will also consult on a ban on co-worker non-solicitation clauses, a ban on no-poach and wage-fixing arrangements between businesses, and a ban on cascading restraint of trade clauses, together with what it calls appropriate exemptions and safeguards to protect legitimate business interests. The exposure draft already contains provisions for each of these bans, with limited exemptions, and all of them remain proposals open to consultation.

Public submissions on the exposure draft can be made online until 2 October 2026. The March 2025 announcement said the reforms would take effect from 2027; the September 2026 release gives no start date. Under the exposure draft as released, the changes would commence on the first 1 January, 1 April, 1 July or 1 October after the Bill receives Royal Assent, penalties for including a non-compete or co-worker non-solicitation clause in a new arrangement would apply only after the first six months, and an existing restraint in an arrangement made before commencement would continue to apply unless the arrangement is varied. As of 28 September 2026, the Parliament's list of bills before it shows no non-compete ban Bill has been introduced.

What This Means If You Have a Non-Compete Clause Today

An existing non-compete clause is still governed by the law as it stands today, not the proposed federal ban. Outside New South Wales that means the common law reasonableness test described above; in New South Wales it means that test plus the Restraints of Trade Act 1976's two mechanisms. Nothing changes for an existing clause until a Bill is actually introduced, passed and commences, and no such Bill exists yet.

A restraint of trade clause is separate from the rules governing how an employment relationship ends. For the rules on being dismissed, see Unfair Dismissal in Australia.

Frequently Asked Questions

Is a non-compete clause legal in Australia?

Generally yes, if it goes no further than reasonably necessary to protect a legitimate business interest. Outside New South Wales this is a common law test; in New South Wales, the Restraints of Trade Act 1976 also lets a court automatically enforce an overbroad clause to whatever extent is not against public policy.

Has Australia banned non-compete clauses?

Not yet. As of 28 September 2026, a federal ban is only an exposure draft open for public consultation until 2 October 2026. The government said in March 2025 the reforms would take effect from 2027, while the exposure draft would commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent. No Bill has been introduced to Parliament.

Who would the proposed non-compete ban cover?

As drafted in the September 2026 exposure draft, employees whose full-time equivalent earnings are at or below the Fair Work Act high income threshold ($190,100 for 2026-27), plus all casual employees and pieceworkers regardless of income. This has not been legislated and could change.

Can my employer enforce a non-compete clause in New South Wales if it is too broad?

Possibly, to a limited extent. Under section 4(1) and (2) of the Restraints of Trade Act 1976, an overbroad clause is automatically valid to whatever extent is not against public policy. A restrained employee can separately apply to the Supreme Court under section 4(3) to have it narrowed further or struck out, but only where the clause was drafted with a manifest failure to attempt reasonableness.

What else does the proposed federal reform target besides non-compete clauses?

The same 7 September 2026 exposure draft proposes banning cascading restraint of trade clauses, co-worker non-solicitation clauses, and no-poach or wage-fixing arrangements between businesses, subject to consultation, with limited exemptions set out in the draft.