Non-compete ban set to further strangle small businesses

Small business advocates have expressed deepening concern towards the government’s plan to ban non-compete clauses for nearly 3 million workers.

In the federal budget delivered on Tuesday, the government revealed it was “taking action to stop unfair non-compete clauses that are holding back Australians workers from switching to better, higher paying jobs.”

The ban on non-compete clauses would apply to workers earning less than the high-income threshold in the Fair Work Act, currently $175,000 and would become effective in 2027, if passed.

Andrew McKellar, chief executive of the Australian Chamber of Commerce and Industry, said he was disappointed by the policy to “severely curtail” the use of non-compete clauses.

McKellar said while he understood that the ban of the clauses would provide workers with more freedom and allow for labour mobility, it would negatively impact employers and the security of their business.

Treasurer Jim Chalmers said Labor would ban non-compete clauses for most workers that had no justification and dragged down wages.

“This budget is backing workers, boosting wages and building a stronger economy. Reforming non-compete clauses is about encouraging aspiration, unlocking opportunity, lifting wages, and making Australia’s economy more dynamic and competitive,” Chalmers said.

The government included the reform within the 2025 budget based on Treasury feedback about the misuse of non-compete clauses, which included minimum wage workers being sued by former employers and workers threatened with legal action if they switched jobs.

McKellar revealed his opposition to the ban based on the enforcement of non-competes being conducted by the courts on a case-by-case basis, which was usually appropriate and considered in all circumstances.

Banning the use for non-competes on employees on less than $175,000 was “heavy-handed”, McKellar said.

“Banning the use of non-competes for anyone earning less than $175,000 a year means employers cannot ensure that the majority of employees do not unfairly use intimate knowledge of advantages or assets at a new employer,” he said.

“I urge the government to preserve the legitimate use of non-compete clauses to protect genuine business interests – the policy does not achieve this balance.”

Bruce Billson, Australian Small Business and Family Enterprise Ombudsman, also expressed disappointment towards the banning of non-competes, stating there would need to be broader consultation to ensure it didn’t result in business value, intellectual property, and client lists walking out the door with a former employee.

Furthermore, small business bodies added that the ban of non-competes would add costs to workers protecting their IP and would see businesses limiting their employment, which would impact economic output.

Paul Guerra, chief executive of the Victorian Chamber of Commerce and Industry, said the budget and proposed non-compete ban failed to adequately show up for small businesses.

“At a time when we needed a budget to set the nation on a clear path to economic growth, there needed to be stimulus for small, medium and family businesses,” Guerra said.

“Instead, we got more workplace overreach in the form of banning non-compete clauses, and no money to incentivise business via instant asset write-offs or assistance to hire apprentices. This pre-election budget missed the opportunity to establish a vision for the future but instead saddles us with more debt that will limit our ability to invest in the future.”