Clifford Chance

The Australian Government is considering a ban on non-compete clauses in certain employment contracts. What could this mean for similar restraints in corporate documents like NDA's, Sale Agreements and Shareholders' Deeds?

In the Australian Federal Budget handed down on 25 March 2025, the Labor Government announced its intention to ban non-compete clauses in employment contracts for workers paid up to AUD$175,000 starting in 2027.

The Government has said that it will consult on these changes which are likely to be made through amendments to the Fair Work Act 2009.

A ban on the use of 'no-poach' clauses, where companies agree not to recruit each other's staff, is also under consideration.

While the Treasurer's budget announcement is focused on non-compete clauses in employment contracts, restraints - which include both non-compete clauses and non-solicit / no-poach clauses- may also appear in corporate transactional documents like Non-Disclosure Agreements, Sale Agreements and Shareholders' Deeds (Transactional Documents).

These clauses play a critical role in facilitating transactions and maximising the price that purchasers are willing to pay for a business.

Drawing from experience, we expect that non-compete and no-poach / non-solicit clauses in the context of Transactional Documents will be excluded from the ambit of the ban. However, this will not mean that any restraint in a Transactional Document is safe from legal challenge. Courts can and do strike down restraints, and the Competition and Consumer Act 2010 (CCA) currently regulates their use giving the Australian Competition and Consumer Commission an ongoing interest in ensuring such clauses do not involve anti-competitive conduct or breach the cartel provisions of the CCA.

An effective and enforceable restraint in a Transactional Document must protect a legitimate business interest, such as the goodwill of an acquired business, have a reasonable duration and geographic scope in relation to that interest, and fall within an exemption in the CCA.

Please contact David Clee, or Nicole Backhouse if you would like a deeper discussion on these issues.