The Australian federal government has announced plans to prohibit non-compete clauses for most employees, a decision that could free up job mobility and potentially increase household incomes.

Set to take effect in 2027, the ban will apply to employees earning below the high-income threshold, which currently stands at AU$175,000 per year.

This measure forms part of the government’s broader effort to foster competition, lift wages, and bolster economic productivity.

Breaking free from contractual shackles

Non-compete clauses – which have traditionally been associated with senior executives to safeguard sensitive information – have become increasingly prevalent across low- and middle-income sectors.

From childcare and construction to hairdressing, millions of Australian workers have found themselves bound by these restrictive agreements. According to government estimates, about 3 million employees are currently covered by non-compete clauses.

Treasurer Jim Chalmers described these agreements as “unnecessary red tape” that prevents workers from pursuing better-paying roles or launching their own businesses.

“Australians shouldn’t need a lawyer to go to a higher-paying job,” he said, emphasising the government’s commitment to removing barriers that stifle upward mobility.

Potential boost to pay packets and productivity

The Productivity Commission has projected that eliminating non-compete clauses could inject around $5 billion into the Australian economy. Additional modelling suggests individual workers could see wage increases of up to $2,500 per year, with the most significant benefits expected for those in lower-paid roles, The Guardian Australia reported.

Government data also indicates that the reform could lead to a 4% uplift in wages for affected employees. With living costs continuing to rise, including higher rents, mortgage payments, and utility bills, many workers are likely to welcome the prospect of increased earnings and greater job flexibility.

“And so, this ticks every box to us … making our economy more productive and boosting participation at the same time,” Chalmers said.

Cracking down on wage suppression tactics

The Albanese government has also set its sights on other anti-competitive practices, including “no-poach” agreements.

These arrangements – often made between rival employers – prevent businesses from hiring each other’s employees, effectively capping wages and limiting career advancement.

In some cases, non-compete clauses have even been weaponised against minimum-wage workers. Instances of employers threatening legal action against those seeking better opportunities have proven the need for reform.

Political undertones ahead of the election?

With a federal election on the horizon, the decision to ban non-compete clauses is being framed as a significant win for low- and middle-income earners.

Labor sources suggest the measure will resonate with voters in sectors such as construction and childcare, where restrictive contracts have been commonplace.

While governments are typically hesitant to introduce major economic reforms in pre-election budgets, Chalmers maintained that this was a necessary step.

Critics of the ban on non-compete clauses

Despite the anticipated benefits for workers, not all stakeholders are fully on board.

The Australian Chamber of Commerce and Industry has expressed concerns that banning non-compete clauses could expose businesses to greater risks. Employers often use these clauses to protect trade secrets, intellectual property, or proprietary client relationships.

The Chamber has urged the government to strike a careful balance to ensure companies can still safeguard legitimate business interests without unfairly restricting employee mobility.

On the other hand, the Australian Council of Trade Unions has welcomed the move, viewing non-compete clauses as a tool used to suppress wages and stifle competition.

Fostering a fairer labour market

The debate over non-compete clauses is not unique to Australia. Similar discussions have taken place in other jurisdictions, with growing recognition that excessive contractual restrictions can hinder innovation and economic growth.

In taking a stand against these clauses, the Australian government aims to create a labour market where workers can pursue better opportunities without fear of legal reprisal.

And, with unemployment at historically low levels, employees are increasingly confident in seeking higher-paying roles. The removal of non-compete clauses could further amplify this trend – and, in effect, encourage healthy competition between businesses and drive up wages across multiple sectors.

The upcoming ban on non-compete clauses marks a significant shift in Australia’s employment landscape. While the road to implementation will likely involve further consultation with businesses and unions, the government remains committed to delivering reforms that promote fairness and economic resilience.

For employers, this change serves as a reminder to build employee loyalty through strong workplace culture and competitive pay, rather than relying on legal constraints. For workers, it opens up new avenues for career growth, financial advancement, and entrepreneurial ambition.

Ultimately, a fairer and more flexible labour market may not only benefit individuals but also contribute to a more vibrant and innovative economy.