Impending Changes to Non-Compete Clauses: What Employers Need to Know
The Australian Government announced plans on 25 March 2025 to ban non-compete clauses for employees earning below $175,000 annually as part of the 2025-26 Federal Budget. This proposal is part of a broader effort to enhance job mobility, wage growth, and innovation in the Australian workforce. Given that 20.8% of employers currently use non-compete clauses—affecting 31% of all employee jobs—this reform will have significant implications for businesses across various industries, including the highly regulated medical and health sector.
Understanding Restraint of Trade Clauses
A restraint of trade clause seeks to restrict an employee’s ability to work elsewhere or engage with clients and staff of their former employer both during and after their employment. These clauses are designed to protect a business’s legitimate interests, including confidential information, goodwill, and patient relationships in medical and healthcare settings.
Types of restraint clauses include:
- Non-compete clauses – Prevent an employee from working for a competing business or starting their own competing business.
- Non-solicitation clauses – Prevent an employee from soliciting clients, referrers, or suppliers after leaving their employment.
- Non-recruitment clauses – Prevent an employee from hiring or encouraging former colleagues to leave their employment.
It is a common misconception that restraint clauses are always unenforceable. However, courts will generally uphold a clause if it is clearly defined and understandable and is reasonably necessary to protect a legitimate business interest.
Courts assess enforceability based on factors such as the duration, geographical scope, and nature of the restriction. In NSW, the Restraints of Trade Act 1976 allows courts to modify overly broad restraint clauses rather than voiding them entirely.
Current use of non-compete clauses in Australia
According to the Australian Bureau of Statistics (ABS), non-compete clauses are prevalent in key sectors, including:
- Financial & insurance services
- Rental, hiring & real estate
- Electricity, gas, water & waste services
- Professional, scientific & technical services
Additionally, research from the E61 Institute found that 22% of employees across Australia are subject to a non-compete clause.
The medical and health industry perspective
The medical and health industry in Australia to some extent is highly regulated, with stringent requirements for qualifications, registration, and licensing. This has created a competitive workforce with a strong demand for specialised skills and expertise.
Employers in the medical sector often rely on non-compete clauses to protect their investment in training healthcare professionals, their confidential patient records, and the goodwill associated with their medical practice. From a HR in Health perspective, we are often tasked to include restraint of trade clauses in contracts for employee doctors, nurses, allied health professionals, and Practice Manager.
Key aspects of the proposed reforms
The Government’s proposed reforms aim to:
- Ban non-compete clauses for employees earning below $175,000 annually.
- Reform Australian competition laws to prevent wage-fixing arrangements and no-poach agreements that limit job mobility.
- Introduce penalties for businesses that impose unlawful non-compete clauses in employment contracts.
The Government has also indicated that it may review the use of non-solicitation clauses (which prevent employees from poaching clients or co-workers) and the application of non-compete clauses to high-income workers.
Information provided by the government indicates the legislative changes will apply prospectively, once the laws come into effect. However, as the Bill has not yet been released, the actual details of the changes and effective date remain unknown.
Potential business impacts in the Health Industry
While the specific details of implementation remain uncertain, members should prepare for the following changes:
- Patient Care Considerations: Restrictive non-compete clauses that limit where healthcare professionals can work could impact patient access to care and continuity of treatment.
- Specialised Training Investments: Medical and specialist practices often invest heavily in training their staff. Without enforceable non-compete clauses, they may need to explore other retention strategies, such as incentive-based contracts or long-term employment benefits.
- High-Income Threshold Considerations: The ban aligns with the high-income threshold under the Fair Work Act 2009 (Cth), which is adjusted annually. Employers should assess whether senior medical staff earning close to the threshold will still be covered under non-compete agreements.
- Legal and Compliance Adjustments: Employers must review and consider how they currently use restraint and non-solicitation provisions to ensure compliance with reforms. Potential amendments to the Fair Work Act could render existing non-compete clauses invalid.
What HR in Health members & employers in Healthcare should do now
- Review Employment Contracts – Assess the current use of non-compete clauses, particularly for employees earning below the high-income threshold.
- Strengthen Alternative Protections – Focus on patient confidentiality clauses, and intellectual property protections to safeguard sensitive medical information.
- Monitor Legislative Developments – Stay informed and connected to HR in Health about these legislative changes to ensure ongoing compliance.
- Seek Legal Advice – Consult with HR in Health and/or your go to legal advisors to navigate potential legal and operational implications.
Looking ahead
While the Government has committed to consultation before finalising legislation, healthcare businesses should proactively prepare for the likely prohibition of non-compete clauses for lower-income employees.
Stay in touch with HR in Health for further updates and guidance about these upcoming changes and what they mean for you, particularly once the details of the legislative updates are released.