Federal Budget announces complete ban on non-compete clauses for employees paid below the high-income threshold

As you may have heard from the release of the Federal Budget last night, assuming the Albanese Government returns to power in the upcoming election, they will make further Fair Work changes. This time, to prohibit employers using non-compete clauses for certain workers.

Only high-level detail was announced last night on how this would operate – with a complete prohibition on non-compete clauses for workers earning less than the high-income threshold. This is set under the Fair Work Act 2009 (Cth) and is currently $175,000 per annum, excluding superannuation, and is adjusted each year on 1 July.

The Federal Government has announced that they will also make changes to close out what they have identified as ‘loopholes’ they say currently allow businesses to:

• fix wages by making anti-competitive arrangements that cap pay and conditions for workers without the knowledge and agreement of affected workers; and

• use ‘no poach’ agreements to block workers from being hired by competitors (often referred to as ‘non-solicitation’ obligations).

We also understand that the Federal Government will consider extending the non-compete prohibition to high-income workers (so those paid above the high-income threshold), as well as non-solicitation clauses for clients and co-workers.

These changes, if made, would represent a significant shift for employers, and will impact what steps businesses could take to reasonably protect their legitimate business interests from a departing employee joining a competitor or setting up a competing business.

Despite this announcement, the exact details are not yet known, and we understand that there will be consultation going forward on the exact policy details (including any exemptions), as well as penalties and transitional arrangements to allow time to prepare for these changes.

When will these changes take effect?

Assuming the Albanese Government is returned to power, we understand that these changes will not take effect until 2027. It is understood that these changes will operate prospectively, and not retrospectively, and should provide a period of time for employers to prepare.

What should Employers do now?

In the interim, the status quo will remain for now with regard to such restraints, and post-employment obligations can still be utilized prior to the changes-as they are not currently prohibited, but noting the usual considerations for enforceability.

These changes will certainly increase the complexity and further regulation for employers in taking steps to protect their legitimate business interests, and in due course, they will need to review such clauses and related practices, should these changes come into effect.

However for now, employers are still encouraged to review their employment agreements, to ensure that there is adequate protection in other areas that it appears will remain untouched, including the protection of business confidential information and intellectual property, and other protections that employers can reasonably put in place, including notice periods, gardening leave, conflicts of interest, and non-disparagement obligations.

New Licensing Scheme

In other Fair Work related changes, we also understand that the Federal Government will introduce a national licensing scheme for electrical trades people.

Need advice and support?

Please contact IR Legal Solutions for specific advice and support for your business. We will also provide updates as further details are released, should these changes be implemented.

This content is not a substitute for legal advice and is for general information only.

Employers should obtain advice specific to their circumstances and business operations, and not rely on this general publication as legal advice.