The Future of Restraint of Trade Clauses in Australia: Employment Law for SME Employers
Restraint of trade clauses, particularly non-compete clauses, have long been an essential part of employment law for SME employers across Australia. Designed to protect businesses' legitimate interests—including client relationships, workforce stability, and confidential information—these clauses limit an employee’s ability to compete or work in certain roles after leaving employment.
Recent legislative developments signal a significant shift. The Australian Government has announced plans to ban non-compete clauses for employees earning under $175,000 annually, effective from 2027. This announcement, part of the 2025 federal budget, intends to boost job mobility and increase wages, potentially benefiting millions of workers across sectors such as childcare, construction, and professional services.
Understanding the Proposed Changes
The planned prohibition specifically targets non-compete clauses, which restrict former employees from joining competing businesses or starting ventures in similar fields. The rationale behind this legislative shift is economic: non-compete clauses have often unfairly restricted employees, especially those in lower and middle-income brackets, from pursuing better employment opportunities. The anticipated outcomes are increased wage growth and improved economic productivity.
“SME employers should note that while non-compete clauses might become unenforceable for certain employees, other forms of protection—including confidentiality obligations and intellectual property protections—remain valid if reasonably drafted and justified.”
Confidentiality Obligations Remain Unchanged
Importantly, eliminating non-compete clauses does not affect an employee's ongoing obligation regarding confidentiality. All employees, irrespective of income level, retain an enduring legal and equitable obligation not to use confidential information learned during employment to benefit themselves or competitors. This obligation persists beyond employment and is crucial for protecting business interests, particularly intellectual property and proprietary processes.
What SME Employers Should Do Now
Given these impending legislative changes, SME employers should:
Review Employment Contracts: Ensure existing restraint clauses comply with upcoming changes and appropriately reflect obligations relating to confidentiality, intellectual property protection, and dispute resolution.
Strengthen Confidentiality and IP Protection Clauses: Reinforce confidentiality and intellectual property provisions within employment agreements to clearly outline ongoing obligations post-employment.
Educate Employees: Clearly communicate expectations around confidentiality, intellectual property protection, and continued legal responsibilities employees have in safeguarding sensitive business information.
Seek Professional Legal Advice: Obtain expert legal advice tailored specifically to SMEs to ensure workplace compliance with these evolving employment laws.
The Legal Framework
The enforceability of restraint of trade clauses is governed by common law principles, requiring clauses to be reasonable, clear, and protective of legitimate business interests. In NSW, under the Restraints of Trade Act 1976, these clauses carry a presumption of validity unless demonstrated to be against public policy.
Final Thoughts
While forthcoming legislative changes significantly impact employment law practices, particularly for SMEs, foundational legal principles remain consistent: employers have the right and obligation to protect their business interests through carefully drafted, reasonable employment agreements. Confidentiality obligations and IP protection remain paramount and unaffected by these amendments.
Ensure Your Agreements are Compliant
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Let our team guide you through these important changes, safeguarding your business and ensuring you fully understand your obligations regarding employee rights and confidentiality.
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