Non-Compete Clause Changes for Small Business

marlise35
Apr 1
2 min read

Non-compete clauses have been a standard tool in many employment contracts across Australia, allowing businesses to prevent employees from working for competitors for a period after leaving their employment. While these clauses were originally designed to protect legitimate business interests like trade secrets and confidential information, the Treasury's Competition Review has determined there is evidence of their misuse, particularly against lower-wage workers who have limited bargaining power.

The Upcoming Changes

Core Reform: Banning Non-Compete Clauses

The government is planning to abolish non-compete clauses for approximately 3 million Australian workers who earn below the high-income threshold of $175,000 (as defined in the Fair Work Act). This will significantly impact small businesses in various sectors including:

Childcare services
Construction trades
Hairdressing and beauty services
Retail and Hospitality
Administrative support services
Healthcare support roles

Small business owners who have traditionally relied on non-compete clauses to protect their client relationships, training investments, and business knowledge will need to develop alternative strategies once it becomes law.

Potential Exemptions

The government has indicated it will consult on exemptions to these reforms. COSBOA will monitor developments around possible exemptions to include:

Protection for genuine business sales (where a seller agrees not to compete with the business they've sold)
Safeguards for genuine partnerships and joint ventures
Special provisions for businesses with highly specialised intellectual property
Modified rules for professionals with unique client relationships (like medical practitioners)

Penalties and Enforcement

While specific penalties haven't been announced, small businesses should prepare for:

Potential financial penalties for attempting to enforce banned non-compete clauses
Compensation claims from affected employees
Regulatory oversight from bodies like the ACCC or Fair Work Ombudsman
Legal costs associated with contract revisions and compliance

Transition Timeline and Implementation

The implementation timeline gives small businesses time to adapt:

Consultation Phase (2025-2026): The government will consult with industry groups, including small business representatives, on implementation details.
Legislative Process: Following consultation, legislation will be drafted and presented to Parliament.
Effective Date: The reforms are scheduled to take effect from 2027.
Prospective Application: Importantly, the changes will operate prospectively, meaning they won't invalidate existing arrangements immediately but will prevent their enforcement after the implementation date.

This proposed change represents a fundamental shift in how small businesses can protect their interests when employees depart and COSBOA will work with its membership to represent the interests of small business in the consultation process to ensure any potential challenges are addressed and mitigated as far as possible.

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