Non-Compete and Restraint of Trade Clauses in Australian Employment

Restraint of trade clauses - commonly called non-compete clauses - are a standard feature of Australian employment contracts, particularly for senior employees, sales professionals and anyone with access to confidential information or key client relationships. However, a restraint clause is only enforceable if it goes no further than is reasonably necessary to protect a legitimate business interest. At Astris Law, we advise both employers seeking to enforce restraints and employees challenging them.

The Common Law Position on Restraint of Trade

The starting point in Australian law is that all restraints of trade are void and unenforceable as a matter of public policy. The burden then falls on the party seeking to enforce the restraint - typically the employer - to demonstrate that the restraint is reasonable in the circumstances.

A restraint will be considered reasonable if:

• It protects a legitimate business interest (not merely competition in general)
• It goes no further than is reasonably necessary to protect that interest in terms of duration, geographic scope and the activities restrained
• It is not contrary to the public interest

The leading Australian authority is Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535, as applied in numerous subsequent Australian decisions including Woolworths Ltd v Olson [2004] NSWCA 372 and Just Group Ltd v Peck [2016] VSCA 334.

What Are Legitimate Business Interests?

Courts have recognised several categories of legitimate business interest that can support a restraint of trade clause:

• Client and customer relationships: Where an employee has developed personal relationships with clients that give them influence over those clients, the employer has a legitimate interest in protecting those relationships
• Confidential information and trade secrets: Proprietary business information, pricing strategies, client lists and technical know-how can justify a restraint
• Stability of the workforce: In some circumstances, employers can protect against the risk of an employee soliciting or recruiting other staff members

Importantly, an employer cannot use a restraint clause simply to prevent an employee from competing. The restraint must be tied to a specific, identifiable interest that needs protection.

The Reasonableness Test: Duration, Geography and Scope

Duration

Courts scrutinise the length of the restraint period. A 12-month restraint may be reasonable for a senior executive with deep client relationships; a 24-month restraint for a junior employee with limited client contact is likely to be struck down. The appropriate duration depends on how long it would take the employer to protect its legitimate interest - for example, the time needed to consolidate client relationships after the employee's departure.

Geographic Scope

The geographic reach of the restraint must correspond to the area in which the employee actually operated or had influence. A nationwide restraint for an employee who only serviced clients in Brisbane is unlikely to be upheld. Conversely, for a national sales director, a broader geographic restraint may be justified.

Activities Restrained

The clause must clearly define what the employee is prevented from doing. Broad prohibitions against working in an entire industry are more likely to be struck down than targeted restrictions against soliciting specific clients or performing a specific role for a direct competitor.

Cascading or Ladder Restraints

To address the risk of a restraint being struck down entirely, many Australian employment contracts now include cascading (or "ladder") restraint clauses. These clauses provide multiple alternative periods, geographic areas and activities, stepping down from the most restrictive to the least. If a court finds the broadest restraint unreasonable, it can enforce the next level down.

The effectiveness of cascading clauses was confirmed in Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267, where the New South Wales Court of Appeal upheld a cascading restraint as a legitimate drafting technique. However, the clauses must be properly drafted - poorly structured cascading provisions can fail if the court cannot identify a severable, enforceable restraint within the cascade.

Interlocutory Injunctions

In practice, restraint of trade disputes often come to a head when an employee resigns to join a competitor. The employer must act quickly - if the restraint period expires before the matter is resolved, the issue becomes moot. Employers frequently seek interlocutory (urgent) injunctions to restrain the employee from commencing the new role pending a full hearing.

To obtain an interlocutory injunction, the employer must demonstrate:

• There is a serious question to be tried (the restraint is at least arguably enforceable)
• The balance of convenience favours granting the injunction
• Damages would not be an adequate remedy

Proposed Statutory Ban on Non-Compete Clauses

While the common law position described above remains the current law, the Australian Government has signalled a significant shift. In the March 2025 Federal Budget, the Treasurer announced that non-compete clauses would be banned for employees earning below the high-income threshold under the Fair Work Act (currently approximately $175,000 per annum). The Government estimates this would affect around 91% of Australian workers. The proposed ban is intended to take effect from 2027.

Between July and September 2025, Treasury released a consultation paper seeking submissions on the implementation details, including the scope of the ban, enforcement mechanisms, penalties, possible exemptions and transition arrangements. Treasury also consulted on whether the ban should extend to independent contractors and high-income earners. Submissions closed on 5 September 2025.

Separately, the Government has proposed reforms under the Competition and Consumer Act 2010 (Cth) to prohibit no-poach and non-solicitation agreements between businesses and to criminalise wage-fixing arrangements — targeting anti-competitive conduct in labour markets more broadly.

As at the date of this article, no legislation has been introduced to implement these proposals. The common law framework for restraint of trade clauses described above continues to apply in full. However, employers and employees should monitor these developments closely. If enacted, these reforms would fundamentally change the enforceability landscape for non-compete clauses in Australia, particularly for employees below the high-income threshold.

Conclusion

Restraint of trade clauses are enforceable in Australia, but only to the extent they are reasonably necessary to protect a legitimate business interest. Employers should ensure their restraint clauses are carefully drafted, proportionate and supported by cascading provisions. Employees who receive a cease and desist letter or face injunction proceedings should seek immediate legal advice, as the enforceability of the restraint will depend heavily on the specific facts. With the proposed statutory ban on non-compete clauses for workers earning below the high-income threshold potentially taking effect from 2027, both employers and employees should keep these reforms on their radar and seek updated advice as the legislative position develops. Astris Law's employment practice regularly advises on drafting, negotiating and enforcing restraint of trade clauses for businesses and individuals across Australia.

This article is for general information purposes only and does not constitute legal advice. You should seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation.