Non compete clause: wording, enforceability and reform

Sample clause

an employment contract between Mulgara Software, a fictional software consultancy in Hobart, and a senior solutions architect who looks after its insurance and health fund clients

12. Non Compete 12.1 In this clause, Restricted Business means a business that supplies custom software or cloud migration services to insurers or health funds, Restraint Period means 6 months or, if that is unenforceable, 3 months after employment ends, and Restraint Area means within 50 kilometres or, if that is unenforceable, 25 kilometres of the Hobart office. 12.2 During the Restraint Period and within the Restraint Area, the Employee must not be employed or engaged by, or hold an interest in, a Restricted Business in a role involving the services the Employee provided to Mulgara Software in the last 12 months of employment. 12.3 Clause 12.2 does not prevent the Employee from holding up to 2 percent of the shares in a listed company, or from working for a Restricted Business in an unrelated role. 12.4 The Employee acknowledges that this clause protects Mulgara Software's confidential information and client connections. 12.5 Mulgara Software may release the Employee from all or part of this clause by written notice.

Sample wording, not legal advice.

Variants

What to negotiate

• Length and area matched to the actual risk

  Employers tend to draft for the longest period and widest area they can imagine. Employees push back by asking what the restraint protects and for how long that information or client connection stays valuable. A period tied to how quickly pricing or client relationships go stale, and an area tied to where clients actually are, is the version most likely to hold.

• Which roles are caught

  A clause that bans any work for a competitor stops a developer taking a payroll job at a rival, which protects nothing. Limiting the restraint to roles that use the same client relationships or information narrows it to the legitimate interest. Employees commonly ask for that limit, and employers often accept it because it strengthens enforceability.

• Release and payment

  A right for the employer to release the employee in writing costs nothing and is widely accepted. Some employees also ask for payment during the restraint, or for any garden leave to be deducted from it. Payment is not a legal requirement, but it bears on whether the overall restraint looks reasonable.

The risk of leaving it out

Without a non compete, a departing employee can join a competitor the next day. The employer then relies on confidentiality obligations, any client non solicitation clause and the general law, which restrain misuse of information and approaches to clients but not the new job itself, and the employer has to prove the misuse rather than point to the move.

How Australian courts decide whether it holds

A restraint is prima facie void as a restraint of trade and is enforced only if the employer shows it protects a legitimate interest, such as confidential information, client connections or the stability of its workforce, and goes no further than reasonably necessary. Reasonableness is judged at the date the contract was made, not the date the employee left, so a restraint signed by a junior employee who later became a director is tested against the junior role. A clause that simply stops competition, with no information or relationships behind it, fails. In New South Wales the Restraints of Trade Act 1976 lets a court read down a restraint that goes too far; elsewhere courts sever rather than rewrite, which is why cascading drafting became common.

The draft ban, and the position in the UK and US

The 2025 to 26 Budget announced a ban on non compete clauses for low and middle income workers, and Treasury says the reforms should take effect from 2027 after consultation and legislation. On 7 September 2026 the Government released draft legislation banning them for workers earning under $190,100 a year, the Fair Work Act high income threshold, and opened consultation on also banning co worker non solicitation clauses, no poach and wage fixing arrangements, and cascading restraints, with submissions closing on 2 October 2026. It is a draft, not law. In the UK, a Department for Business and Trade working paper published in November 2025 set out options including a three month statutory limit and a ban. In the US, the Federal Trade Commission's nationwide rule was set aside by a court and removed from the Code of Federal Regulations in February 2026, leaving state law in charge.

Where it sits in a generated document

In a generated employment contract the non compete belongs with the clauses about what happens after employment ends, beside confidentiality and non solicitation, with each period and area as its own numbered sub clause. Every value is written as content, so the months and kilometres can be changed as ordinary text afterwards. The generated text does not print citations, so any reference to the draft ban or a state Act has to be checked against the law in force before signing.

Documents that carry this clause

Non-compete agreement template with cascading restraint clausesAn Australian non-compete lives or dies on how it is drafted, because a court will not rewrite one that reaches too far. This one restrains a senior stylist from a competing salon using three separate covenants of falling reach, from 5 kilometres for six months down to 1 kilometre for three, and pays $4,500 for them.Employment contractA full time ongoing contract for an operations coordinator on $86,000 plus $10,320 of superannuation. Eleven numbered clauses, a leave table drawn from the National Employment Standards, and a notice table that scales with service.Non-solicitation agreement for clients, staff and durationA non-solicitation agreement restrains the approach, not the work. This one lets an accounting manager join a competitor the day after he leaves, and stops him approaching the clients he handled or the colleagues he managed for twelve months, with a six month window in which he also cannot accept work from those clients.Shareholders agreement templateA veterinary diagnostics company has just taken $1.5 million from one seed fund. The founders keep 80 percent between them, so the whole agreement turns on a single number: the 75 percent consent threshold that puts the investor on one side of every decision that matters.

Questions people ask