Restraints of Trade clauses in employment contracts aren’t worth the paper there written on”…. or so many of our clients think…. Whilst its true that prima facie ( fancy Latin word meaning “ on the face of it” ) the restraint provisions in employment agreements are void, if a employer seeking to enforce a restraint can demonstrate to the court that the restraint is reasonably necessary to protect their business interests they can be declared binding.[1]
Historically employers have sought to use restraint of trade provisions to prevent unfair competition from ex-employees who go to work for a competitor or who set up business in competition. Those ex-employees may have trade secrets, confidential information, goodwill and relationships with clients of their ex employer which they acquired when employed with the ex-employer and which if used could inflict harm on the legitimate interests of the ex-employer.
Courts when considering whether to enforce a restraint clause consider the duration and distance the restraints, the ex-employees seniority and relationship with clients of the ex-employer and therefore their ability to influence those clients to take their business elsewhere, the nature of the confidential information, trade secrets and goodwill that the ex-employee has access to.
In March 2025 however the Government announced plans as part of its 2025 – 26 Federal Budget to boost productivity by reforming non-compete restraint of trade clauses. In its Media release of March 2025 the Government signalled a crackdown on “ unfair non‑compete clauses that are holding back Australian workers from switching to better, higher‑paying jobs”. It states that the reform will be about “ about encouraging aspiration, unlocking opportunity, lifting wages, and making Australia’s economy more dynamic and competitive” and “ and “ overcome troubling accounts about the misuse of non‑compete clauses, including minimum wage workers being sued by former employers and workers being threatened with legal action if they switched job”.[2]
The legal changes foreshadowed are likely to apply to employees earning less than the high-income threshold contained in the Fair Work Act 2009 (Cth) i.e. $175,000 pa. Contracts with restraint provisions prior to the introduction of the legislative changes are likely to remain in force. It will not be retrospective.
The Government will also be seeking to reform competition law that currently allow businesses to:
- Fix wages by making anti‑competitive arrangements that cap workers’ pay and conditions, without the knowledge and agreement of affected workers.
- Use ‘no‑poach’ agreements to block staff from being hired by competitors.
This is good news for those who income is below the threshold. For employers it means non competes will continue to have application but in a narrower context for higher income earner.
Employers wishing to adapt employment contracts to protect their confidential information and intellectual property they will need to consider education around ring fencing confidential information within an organisation, cascading restraint clause, use of paid restraints, extended garden leaves etc.
For more information please contact us here at DLF.
[1] In New South Wales the Restraint of Trade Act 1976 (NSW) applies so that it modifies this common law position so a restraint of trade is valid to the extent it’s not against public policy.
[2] https://ministers.dewr.gov.au/chalmers/cracking-down-non-compete-clauses-boost-wages-and-productivity
