Banning Non-Competes: Great Headline, Rubbish News for the Business That Trained Them

The Albanese Government wants to ban non-compete clauses for anyone earning under $190,100. It sounds like a win for workers. For the small business that spent two years training that worker, it’s a very different story.

What is actually being proposed?

The government has released draft legislation to ban non-compete clauses for employees earning below the Fair Work Act high-income threshold of $190,100. That covers the enormous majority of Australian workers, including most trades, retail, hospitality and admin roles.

On top of that, the government is consulting on banning co-worker non-solicitation clauses, no-poach and wage-fixing arrangements between businesses, and cascading restraint of trade clauses, with submissions open until 2 October 2026.

The stated goal is job mobility and wage growth. Research cited by the government suggests one in five workers currently sit under a non-compete clause, and removing them could lift affected workers’ wages by around four per cent.

Why does this land so badly for small business?

Because a non-compete clause was never really about trapping people in bad jobs. For most small businesses, it was the one piece of paper standing between them and watching a competitor walk off with the staff member, the client list and two years of training investment, all at once.

Minister Rishworth stated that: non-compete clauses drag down wages, handcuff workers, and put a handbrake on productivity. Fine in theory. But talk to an actual small business owner and the handbrake they’re worried about is the one on their own survival, not on the broader economy.

This is the same pattern we see every time workplace reform rolls out. The policy is built around the worst-case employer, the one deliberately trapping staff on low wages with no genuine reason. But the rule ends up applying to every business, including the ones who were never the problem in the first place.

Doesn’t matter, most of these clauses never got enforced anyway

This is worth addressing directly, because it’s the part missing from most of the coverage. The one significant Australian study on this found that restraint clauses, non-competes and non-solicitation terms together, are only actually enforced around a third of the time outside NSW. NSW has its own legislation making restraints easier to enforce, which lifts that figure to around 56% there. Nationally, the honest picture is that most restraint clauses were never a sure thing for the employer relying on them.

There’s a reason for that. Australian courts start from the position that a restraint is void unless the employer can prove it’s reasonably necessary to protect a genuine business interest, not the other way around. Treasury’s own Competition Taskforce has acknowledged as much. And getting that proved means civil litigation, expensive, slow, and usually only worth pursuing for a business with deep enough pockets and a big enough loss to justify it. Most small businesses were never going to sue over this. They knew it, and if their staff had checked, their staff would have known it too.

So why did the clause matter at all if it was so rarely tested? Because the value was never really in the courtroom, it was in the letter existing in the first place. A clause sitting quietly in a contract that most employees never question is a far cheaper deterrent than a lawyer. Remove it, and you’re not closing a loophole that businesses were exploiting. You’re taking away a bluff that was mostly working.

It’s also worth being straight about one thing: this isn’t purely a big-business problem being solved on the backs of small operators. Treasury’s own evidence for this reform specifically cites cases in hairdressing, hospitality and retail, minimum-wage workers threatened with legal action over clauses that had close to no chance of holding up in court. That’s a genuine misuse case, and it happened in small businesses, not just big ones. The honest read is that a handful of bad actors created the evidence base, and now every small business that used a restraint clause reasonably is getting swept up in the fix.

Real example: the hairdresser

Picture a suburban hairdressing salon. The owner takes on a junior, pays for their apprenticeship, spends eighteen months building their skills and introduces them to a loyal client book built up over a decade.

Under the old rules, a non-compete clause gave the owner some breathing room, a few months where that stylist couldn’t open up two doors down and start booking in the same clients they were trained to look after. Under the new rules, that stylist can walk out on a Friday and start cutting hair across the road on Monday, taking the very clients the salon spent years building loyalty with.

The owner did nothing wrong. They invested in a junior, paid above award, and still ends up training their own competition.

Real example: the plumbing business

Now picture a small plumbing business, three vans, one office manager, a handful of qualified tradies. The owner takes on an qualified Plumber straight out of trade school, still green as grass, helps then become a fully licensed plumber who knows every client on the books by name.

Without a non-compete in place, that plumber can work for this business for 3 years, and then join a competitor the following week, undercutting the business that trained them on jobs they only know about because of where they used to work. The training cost doesn’t come back. The client relationships the business spent years building can walk straight out the door with them.

Multiply that across every trade business in the country and you start to see the real cost of this reform. It isn’t abstract. It’s the time and investment in training this worker, and the client trust that took years to build, all exposed the moment someone hands in their notice.

What about the rest of the consultation?

The parts getting less attention are arguably more concerning for small business. A ban on co-worker non-solicitation clauses means staff can leave and immediately start recruiting your team to follow them. A ban on cascading restraint clauses affects franchise and multi-site operators who rely on consistent protections across locations.

Bans on no-poach and wage-fixing arrangements between unrelated businesses are harder to argue against, that behaviour genuinely does suppress wages and belongs in a different category to a hairdresser or plumber protecting their own client base.

So what should employers actually do?

Panic-rewriting every contract isn’t the answer, this is still draft legislation and submissions close 2 October 2026. But there’s a real opportunity here to get ahead of it:

• Have your say. Submissions are open on the Treasury consultation hub until 2 October 2026, this is the window to flag genuine small business impacts before the final version is locked in.
• Shift your protection strategy from restraint to retention. Pay, culture and genuine career progression keep people longer than a non-compete clause ever did.
• Look at confidentiality and client non-solicitation clauses now, these aren’t part of the ban and still offer real protection for client relationships and business information.
• Review notice periods and handover requirements, they matter more than ever if a departing employee can walk straight into a competing business.

This reform is coming in some form. The businesses that get ahead of it now will be in a far better position than the ones who wait for the final version and scramble.

Frequently asked questions

Who does the non-compete ban apply to?

Employees earning under the Fair Work Act high-income threshold of $190,100 per year. That covers the large majority of the Australian workforce.

Is the non-compete ban law yet?

No. It’s currently draft legislation open for consultation, with submissions closing 2 October 2026.

Are non-compete clauses usually enforced in Australia?

Not often. The main Australian study on this found restraints are enforced around a third of the time outside NSW, and around 56% of the time in NSW, where legislation makes them easier to enforce. Courts start from the presumption that a restraint is void unless the employer proves it’s reasonably necessary.

Can businesses still protect client relationships without a non-compete clause?

Yes, confidentiality clauses and client non-solicitation clauses are separate to this ban and remain a genuine option, though co-worker non-solicitation clauses are also being reviewed as part of the same consultation.

What should small business owners do right now?

Make a submission if this affects you, and start shifting focus toward retention strategies and alternative contract protections rather than relying on restraint clauses that are on their way out.

Need a hand cutting through the BS?

This is exactly the kind of reform that sounds simple in a press release and gets complicated fast in a real contract. If you want a plain-English read on what this means for your business and your existing agreements, get in touch with HR Gurus and we’ll help you cut through the BS.