In summary:

• Non-compete clauses, wage-fixing agreements, and no-poach agreements will be banned from 2027
• Workers earning less than $175,000 will benefit, including those in the childcare and construction sectors
• Affected workers' wages may increase by up to 4%

The 2025 federal budget brought a potential boost for about three million low and middle-income earners below the $175,000 bracket: the end of non-compete clauses from 2027. Treasurer Jim Chalmers announced that the Albanese government would ban "handcuffs" holding workers back from better opportunities, describing non-compete clauses as "a handbrake on business creation and a speed bump on aspiration."

The ban has been coming for a while now. In 2023, a government white paper on jobs and opportunities took aim at non-compete clauses, marking them as a barrier to labour market dynamism; in 2024, the Competition Taskforce raised alarms about the growing prevalence of non-compete clauses.

Data from 2023 estimates that 20% of the Australian workforce is subject to some form of non-compete clause, and that 20% of businesses use such clauses, applying them to as many as 75% or more of employees.

The impact of banning non-competes

Non-compete clauses aren't the Treasury's only target. The government is also out to put a stop to wage-fixing agreements and no-poach agreements between businesses - the kind of inter-employer collusion that prevents workers from seeking better pay elsewhere or even finding other jobs at all, and that at worst can keep wages and employment mobility permanently depressed in an affected area.

Many of the workers estimated to be affected by non-compete clauses and similar restraints today are in low-paid sectors that face a manpower shortage, including childcare and construction. Part-time and casual workers will also benefit.

Without such employee-disadvantaging clauses in place, they should be able to move between jobs and seek out higher pay with relative ease - a real need at a time when inflation is shoving the cost of living upward and wobbling global demand is pulling national revenue down. 

Chalmers said that this particular set of reforms could increase workers' wages by 4%, or about $2,500 per year for a worker on median wages. He also cited Productivity Commission estimates that could potentially add $5 billion or 0.2 per cent to GDP annually.

What happens to businesses that are using non-competes?

In 2027, employment contracts involving non-compete clauses for workers making less than the high-income threshold will most likely become void. Employers will have to re-issue the contracts for those workers - who in turn may decide to try their luck elsewhere.

No details about possible penalties for non-compliance are out at this stage, but given that some numbers have already been attached to the potential gains for workers (and thereby the potential losses), one possibility is that financial penalties will be pegged to the worker's opportunity cost.

There is also a possibility of exceptions being made, given that employer organisations including the Australian Chamber of Commerce and Industry and the Australian Industry Group have previously argued that non-compete clauses can actually help to protect certain business interests. But employers shouldn't bet on it. Other instruments still exist to protect almost all business interests, from confidential information to inventions to specialised training.

Where else are non-compete clauses banned?

Not many countries have outright banned non-compete clauses, even for low-wage workers. However, jurisdictions that allow these clauses mostly place restrictions on their use. In Europe, for example, various countries stipulate that compensation is mandatory and must cover a significant portion of the worker's earnings, that the restraint must be "reasonable" (Germany), or that the worker must hold a "special position of trust" (Denmark). In Belgium, non-compete clauses are only valid for high-income workers.

In China, non-compete clauses may only apply to "qualified" workers, which are generally understood to be senior managers, senior technicians, or those of similar level, and the applicability of the clause will be judged by whether the worker's new venture genuinely presents identifiable and measurable competition to the previous employer.

In the US, the Federal Trade Commission attempted to ban all non-compete clauses nationwide last year, but the regulation is being disputed in the courts.