In Australia, restraint of trade clauses, such as non-compete clauses and confidentiality agreements, are common in employment contracts to protect employers’ legitimate business interests. However, their enforceability and future use are under increasing scrutiny due to concerns about their impact on job mobility, competition, and innovation.
Understanding restraint of trade clauses
A restraint of trade clause restricts an employee’s activities during or after employment to safeguard the employer’s business interests. These clauses are generally presumed unenforceable unless the employer can demonstrate that the restraint is reasonable and necessary to protect legitimate interests, such as trade secrets or client relationships.
Types of restraint clauses:
- Non-compete clauses: Prevent former employees from working with competitors or starting a competing business for a specified period and within a certain geographical area.
- Non-solicitation clauses: Restrict former employees from soliciting clients or employees of their former employer.
- Non-disclosure clauses: Prohibit the sharing of confidential information or intellectual property acquired during employment.
Legal enforceability for Australian businesses
Whether a restraint clause is enforceable will be assessed by the courts as to their reasonableness. Courts assess the reasonableness of restraint clauses by considering factors and circumstances such as:
- The duration and geographic scope of the restraint.
- The nature of the employer’s business interests.
- The employee’s role and access to sensitive information.
A restraint must be no broader than necessary to protect the employer’s legitimate interests. Should the clause be too broad, for example, that it may prevent a person for working anywhere in Australia in any role for which they are appropriately qualified, the restraint is unlikely to be enforced by the court.
Proposed changes to non-compete clauses for 2027
A concern held regarding restraint clauses are that they can reduce national productivity. Allowing workers to transition freely between employers without legal constraints encourages competition.
As part of the 2025–26 Federal Budget, the Australian Government announced plans to ban non-compete clauses for workers earning less than the high-income threshold prescribed under the Fair Work Act, which is currently $175,000 per annum. This reform requires parliamentary approval and is not scheduled to take effect until 2027 if legislated. As a Bill, it will likely be subject to consultation and debate, potentially leading to changes and a lessening of the proposed ban.
Practical steps for employers to consider when applying restraint of trade clauses
- Review and revise your employment contracts to ensure your restraint clauses are tailored to protect specific legitimate business interests.
- Avoid overly broad or indefinite restraints that may be unenforceable.
- Stay informed about legal developments affecting the enforceability of such clauses.
As legal and policy landscapes evolve, employers must navigate restraint of trade clauses carefully to balance business protections with fair employment practices.
How can Business Chamber Queensland help?
Navigating proposed legislative changes, such as the banning of restraint clauses, can be complex and overwhelming for small and medium-sized businesses – and can expose them to significant legal and financial risk.
Business Chamber Queensland is here to help. We provide expert industrial relations (IR) and employee relations (ER) support to ensure your business remains compliant and protected. Our services include:
- Clear guidance on how to determine employment terms, whether for employees or independent contractors.
- Tailored advice on employment contracts, termination processes, and best-practice HR procedures.
- Representation and support in matters before the Fair Work Commission.
- Practical resources and training to empower business owners and managers.
Whether you’re employing staff for the first time or leading a growing team, Business Chamber Queensland is your trusted partner in navigating Queensland’s IR and ER landscape. Contact us today for local, expert support tailored to the needs of your business.
