Restraints of Trade in Employment: What the Proposed Changes Mean for Employers and Employees

Restraint of trade clauses are common in Australian employment contracts, particularly for employees who have access to confidential information, client relationships, trade secrets or other commercially sensitive information.

However, significant changes to the regulation of employment restraints have been proposed at a federal level. The proposed reforms could change the way employers use non-compete clauses and other post-employment restraints, while also affecting employees who are subject to these restrictions.

Importantly, the proposed reforms are not yet law. On 7 September 2026, the Australian Government released draft legislation proposing changes to non-compete clauses and other restraints. The consultation period closed on 2 October 2026, and the proposed reforms have not yet been enacted. The final form and commencement of any legislation remain subject to the Government’s consideration of the consultation feedback.

What is a restraint of trade?

A restraint of trade is a contractual provision that seeks to restrict a person's activities during or after their employment.

Common examples include:

• Non-compete clauses, which seek to prevent an employee from working for a competitor or operating a competing business;
• Client non-solicitation clauses, which seek to prevent an employee from approaching or soliciting the employer's clients or customers;
• Employee non-solicitation clauses, which seek to prevent an employee from approaching or recruiting their former colleagues;
• Non-dealing clauses, which may restrict an employee from dealing with certain clients or customers; and
• Cascading restraints, which provide multiple combinations of restraint periods, geographical areas or restricted activities.

Employers commonly use restraints to seek to protect legitimate business interests, including confidential information, customer relationships and other commercially sensitive information.

What changes have been proposed?

The Government has stated that its proposed reforms are intended to prevent non-compete clauses from restricting workers earning below the Fair Work Act 2009 (Cth) high income threshold and to address other types of restraints considered to unnecessarily restrict worker mobility.

Will employers still be able to protect their business?

The proposed reforms do not mean that employers will lose all contractual protection when an employee leaves. Employers will continue to have legitimate business interests that may require protection, including:

• confidential information;
• trade secrets;
• intellectual property;
• customer and client information;
• pricing and commercial information;
• business systems and processes; and
• valuable customer relationships.

The proposed reforms make it particularly important for employers to consider how those interests are protected. Rather than relying primarily on a broad non-compete clause, employers may need to place greater emphasis on appropriately drafted confidentiality obligations, intellectual property provisions and targeted protections concerning customer and client relationships.

What should employers do now?

Although the proposed reforms are not yet law, employers should consider reviewing their existing employment contracts.

1. Review existing restraint clauses

Identify employees who are currently subject to non-compete, non-solicitation and other post-employment restraints. Consider whether each restraint remains appropriate having regard to the employee's position and the business interest the employer is seeking to protect.

2. Identify the business interest being protected

Employers should consider why each restraint is included. For example, is the restraint intended to protect confidential information, client relationships, trade secrets or another legitimate business interest? A restraint should not simply be included as a standard provision without considering its purpose and scope.

3. Review confidentiality provisions

Confidentiality provisions can be an important part of protecting a business when an employee leaves. Employers should consider whether their employment contracts adequately identify confidential information and the employee's obligations concerning that information.

4. Consider client and customer protections

Where the principal concern is the loss of clients or customers, a targeted contractual restriction may be more appropriate than a broad prohibition on working for a competitor. The appropriate approach will depend on the particular circumstances and the applicable law.

5. Review future employment contracts

Employers should consider the proposed reforms when preparing new employment agreements, particularly where the employment relationship is expected to continue beyond the anticipated commencement of the new regime.

What should employees do?

Employees should carefully review any restraint contained in their employment contract before changing employment or starting a competing business.

A restraint is not necessarily enforceable simply because it appears in a signed contract. However, employees should not assume that a restraint is invalid without obtaining legal advice.

The position may depend on:

• the wording of the restraint;
• the employee's position and responsibilities;
• the duration of the restraint;
• the geographical scope;
• the interests the employer is seeking to protect;
• the circumstances in which the employment ended

Employees considering moving to a competitor should obtain legal advice before taking steps that could potentially breach their contractual obligations.

What does this mean for NSW businesses?

For NSW employers, there are currently two important considerations.

First, the current NSW law continues to apply while the proposed federal reforms remain subject to the legislative process.

Secondly, businesses should start considering whether their existing employment contracts are appropriately structured for the proposed new regime.

The proposed reforms may make broad, standard-form non-compete clauses less useful for many employees. This makes careful drafting and a clear understanding of the employer's legitimate business interests increasingly important. Employers should also consider whether other contractual protections, including confidentiality and intellectual property provisions, adequately protect their business.

Key takeaway

Proposed reforms to restraints of trade could significantly change how employers protect their business interests and how employees manage post-employment restrictions.

For now, employers and employees should continue to consider restraints carefully and obtain legal advice about existing or proposed employment agreements, particularly where a restraint may affect future employment or the protection of confidential information and client relationships.

The proposed reforms remain subject to the legislative process and may change before taking effect.

At Lawgix, we can assist employers and employees with reviewing, drafting and advising on employment restraints and employment contracts. If you are an employer seeking to protect your business or an employee who has been asked to sign or comply with a restraint, contact Lawgix for advice about your particular circumstances.

Further information

For further information about the proposed reforms, see the Australian Government's information on proposed changes to non-compete clauses and other restraints.

For the current Fair Work high income threshold, see the Fair Work Ombudsman's high income threshold information.

For the current NSW legislation, see the NSW Restraints of Trade Act 1976.