Most business owners have a non-compete clause sitting in their employment contracts. It is usually a paragraph nobody has looked at since the template was drafted, quietly doing a job everyone assumes it is doing: stopping a departing employee from walking down the road and setting up in competition.
From 2027, for most of your team, it might not be doing that job at all.
What has been proposed?
In the 2025–26 Federal Budget, the Federal Government announced its intention to prohibit non-compete clauses for employees earning below the high-income threshold under the Fair Work Act 2009 (Cth). At the time of writing, that threshold is $190,100 (from 1 July 2026), although it is indexed annually.
Importantly, these reforms have not yet become law. The Government has released a consultation paper and indicated that, if the necessary legislation is passed, the reforms are intended to commence in 2027 and operate prospectively. Until then, the existing common law principles governing restraint of trade continue to apply.
It is also worth remembering that this is not an entirely new concept. Australian courts have long approached post-employment restraint clauses with caution. The law has always sought to balance two competing public policy considerations: an individual’s freedom to earn a living and compete in the marketplace, against an employer’s legitimate interest in protecting confidential information, customer relationships and goodwill.
For that reason, restraint clauses have never been automatically enforceable. It has been clear since the landmark High Court decision in Lindner v Murdock’s Garage, that the onus has rested squarely with the employer to demonstrate that is reasonably necessary to protect a legitimate business. If enacted, the Federal Government’s proposed reforms would go even further.
Why it matters more than it sounds
Two numbers are worth thinking about. The Australian Bureau of Statistics found in its 2023 Restraint Clauses Survey that 21 per cent of businesses used non-compete clauses for at least some of their employees. Treasury estimates more than three million Australian workers are captured by them.
This is not a niche issue for tech firms and investment banks. It is bakers, hairdressers, childcare workers, warehouse staff and, yes, plenty of people in professional services and of course, pharmacies.
Here is the uncomfortable part. Many owners are already less protected than they believe. A broad, boilerplate clause telling someone they cannot work in the industry anywhere in Australia for two years is exactly the kind of restraint that has long been vulnerable to challenge. If the proposed reforms are enacted, that position will become even more pronounced for employees earning below the statutory threshold.
What is not changing
If you sell your business, the restraint you take from the vendor is not affected. Sale of business non-competes sit outside the proposed ban, and for good reason: when a buyer pays for goodwill, they are entitled to protect what they paid for.
That distinction matters because the competing public policy considerations are different. As the High Court explained in Peters (WA) Ltd v Petersville Ltd, the law seeks to balance two competing principles: that parties who freely enter into commercial contracts should generally be held to their bargain, and that individuals should ordinarily enjoy the freedom to exercise their skills and capacities without unreasonable restraint.
Thus, historically, there has long been a willingness to enforce restraints freely entered into by vendors. Historically, this also picks up on the long-standing principle that Courts are less likely to interfere in contracting where the bargaining power of the parties is relatively more equal.
Non-solicitation clauses, which stop a departing employee from approaching your clients or your staff, are a separate question again and have been flagged for further consultation rather than an outright ban.
What to do about it
You have time, which is precisely why now is the moment to use it.
- Audit your contracts. Find out who has a non-compete, what it actually says, and whether it would survive a court today. Many may not. If the legislation is enacted in its current form, the Government has indicated that it is intended to operate prospectively rather than retrospectively. Thus, it is important to get these things right now.
- Shift your protection to what still works. Confidentiality obligations, intellectual property assignment, clear ownership of client data and well-drafted non-solicitation provisions do more real work than a restraint clause ever did. An employee might take a job with your competitor two doors down the street, but if they breach these obligations, you still have options.
- Protect the relationship, not just the paper. The most enforceable protection is a business where key people stay because they want to. Retention, equity, incentives and culture are legal risk management, whether or not anyone calls them that.
- Get the sale contract right. If an exit is anywhere on your horizon, the restraint you negotiate on the way out is now doing a lot more of the heavy lifting.
The businesses that come out of this well are unlikely to be those that first discover the reforms in 2027. They are more likely to be those that spend 2026 reviewing their employment contracts and ensuring the protections that remain available are properly documented so they are better placed if and when the proposed reforms take effect.
If you would like a review of the restraints and protections in your employment contracts before the reforms land, get in touch, the AP Legal team would be glad to help.
This article is general information only and is not legal advice. It does not take your circumstances into account.
Written by Rohan Murray, Senior Lawyer – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
With nearly two decades of experience across Victorian and Federal jurisdictions, Rohan brings a wealth of knowledge and a calm, considered approach to the AP Legal team. A versatile practitioner, he’s passionate about using the law to help businesses, individuals and families navigate complex matters with clarity and confidence.
Rohan regularly appears as a solicitor advocate in both commercial and family law and has represented clients ranging from large corporations to individuals, even other lawyers and barristers. His commercial work covers everything from business sales and partnership agreements to share structures, unit trusts and estate planning. No matter the brief, his focus is on practical outcomes and clear communication.
Outside of work, Rohan holds a PhD in Music Performance from the Victorian College of the Arts and Melbourne Conservatorium of Music (VCAM) and worked as a professional freelance musician for over 10 years before coming to the law.
So it’s no surprise that he is well equipped to help customers with some of the biggest decisions they will ever make — buying a home or investing in a pharmacy — and helping to show them what’s truly possible.