TL;DR
- Restraints of trade are prima facie void. They bind you only so far as they are reasonable to protect a legitimate business interest, and the onus of proving that sits with whoever wants to enforce the clause.
- The law is about to change. A draft bill released in September 2026 would ban non-compete clauses for workers earning under the Fair Work high income threshold from 2027, limit non-solicitation clauses, and treat no-poach and wage-fixing agreements between businesses as cartel conduct.
- The reforms target worker restraints. Genuine commercial restraints between businesses, and restraints attached to the sale of a business and its goodwill, are largely untouched.
- Which category your contract falls into now matters more than it ever has.
- For anything you sign today, check what conduct is restricted, for how long, where, what you get in return, and what survives if the deal never proceeds.
Restrictive clauses limit what you can do during a business relationship, after it ends, and sometimes while you are still negotiating. They can determine whether you can take on a competitor’s work, approach a former client, hire someone you used to work with, or move into a new market.
They have always been worth reading carefully. They are worth reading more carefully now, because the regime governing them is in the middle of the biggest change in decades, and a restraint you agree to this month will still be running when that change takes effect.
This guide covers both: what is coming, and what to check in the contract in front of you.
- What is changing in 2027?
- What is a restrictive clause in a business agreement?
- What type of restriction are you agreeing to?
- What is the clause actually trying to protect?
- When does the restriction start?
- How long does the restriction last?
- How wide is the geographic restriction?
- What do you receive in return for the restriction?
- How broad is a non-compete clause?
- Does the agreement stop you from approaching clients, staff, or suppliers?
- Does an exclusivity clause stop you from taking other work?
- Does a non-circumvention clause go further than necessary?
- Is the confidentiality clause broader than confidentiality?
- What happens if the main deal never goes ahead?
- What happens when the commercial relationship ends?
- Could a narrower clause protect the same interest?
- Can restrictive clauses be negotiated?
- Restrictive clause checklist before you sign
- When should you get a restrictive clause reviewed?
- FAQs
What is changing in 2027?
In September 2026, the Federal Government released a draft bill that would substantially rewrite how post-employment restraints operate in Australia. The headline measures are:
- A ban on non-compete clauses for most workers. Non-compete clauses would be prohibited for workers earning below the Fair Work high income threshold, which was $183,100 for the 2025-26 year and is indexed annually. On the Government’s own figures that captures the large majority of Australian workers. The ban would be implemented through amendments to the Fair Work Act 2009 (Cth). For workers above the threshold, the Government has been consulting on whether to extend the ban, impose statutory limits such as a maximum duration or mandatory compensation, or leave the common law position as it is.
- Restrictions on non-solicitation clauses. Clauses preventing a departing worker from poaching their former colleagues are expected to be banned or heavily restricted, on the basis that they restrict the freedom of third parties who never agreed to anything. Clauses preventing solicitation of clients are expected to survive but face limits, potentially including a maximum duration and confinement to clients the person actually dealt with.
- No-poach and wage-fixing agreements become cartel conduct. This is the measure most relevant to business-to-business contracts. Arrangements between businesses not to hire each other’s staff, or to coordinate what they pay, would be brought within the cartel provisions of the Competition and Consumer Act 2010 (Cth) and enforced by the ACCC. These arrangements are currently treated as ordinary contract terms. Moving them into competition law means penalties rather than an unenforceable clause.
- Sale of business restraints are carved out. Restraints attached to the sale of a business and its goodwill remain outside the scope of the reforms.
Commencement is expected in 2027, with transitional arrangements including grace periods and employer notification obligations. None of it is law yet and the detail may change before the bill passes.
Why this matters for a contract you are signing now
Two reasons.
First, duration. A restraint of two or three years signed today will spend part of its life under the new regime. If you are the party accepting the restraint, do not assume it will bind you for its full term. If you are the party seeking protection, do not build your commercial position on a restraint that may shortly be unavailable to you.
Second, classification. The reforms draw sharp lines between employment restraints, commercial restraints between businesses, and sale of business restraints. Contracts in small businesses routinely blur those lines. A founder who sells their business and stays on as an employee, or a contractor who is functionally a worker, sits in exactly the grey zone the reforms will make consequential. Work out which category each restraint in your contract actually belongs to.
What is a restrictive clause in a business agreement?
A restrictive clause limits what either party can do during or after a business relationship.
Common examples include:
- Non-compete clauses
- Non-solicitation clauses
- Non-dealing clauses
- Exclusivity clauses
- Non-circumvention clauses
- Confidentiality clauses
Focus on what the clause actually stops you from doing, not what it is called. A document titled “Confidentiality Agreement” can perfectly well stop you contacting clients, working with named suppliers, or pursuing opportunities you were already chasing. Read for effect, not heading.
The starting position at law
Before looking at any individual clause, it helps to know where the law begins. A restraint of trade is prima facie void and unenforceable. It binds you only to the extent it is reasonable in the interests of the parties and not contrary to the public interest, and the burden of establishing reasonableness rests on the party seeking to enforce it, not on the party resisting it. The foundational Australian authority is Lindner v Murdock’s Garage (1950) 83 CLR 628, applying the principle from Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535.
Two practical consequences follow.
A clause is not enforceable simply because it is in the contract and you signed it. Courts regularly strike down restraints that go further than the legitimate interest being protected.
But an unenforceable clause is still a problem. Establishing that a restraint is void usually means funding litigation to say so, and in the meantime you have to decide whether to risk breaching it. A clause that will probably fail in court can still stop you taking work for two years, because most businesses cannot afford to find out.
Reasonableness is assessed when you sign
This is the most useful proposition in the doctrine for anyone reading a contract. Reasonableness is judged as at the date the contract was entered into, not the date of the alleged breach.
A clause that was too wide when you signed it does not become enforceable because the other party’s business later grew into it. Equally, a clause that was reasonable when signed is not saved or destroyed by what happened afterwards.
Which is to say: the moment to fix the scope is now, not later.
What type of restriction are you agreeing to?
Contracts often contain multiple restrictive clauses. Your business might agree to confidentiality obligations, non-solicitation rules, and exclusivity terms all in the same document.
| Clause | What it generally restricts |
|---|---|
| Non-compete | Competing with the other business |
| Non-solicitation | Approaching specified clients, staff, or suppliers |
| Non-dealing | Doing business with certain clients or contacts, even if they approach you |
| Exclusivity | Working with other businesses or pursuing competing opportunities |
| Non-circumvention | Bypassing a party to deal directly with an introduced contact or opportunity |
| Confidentiality | Using or disclosing protected information |
Identify all restrictions in the contract rather than assuming there is only one.
What is the clause actually trying to protect?
Every restrictive clause should protect a genuine business interest, such as:
- Confidential information
- Trade secrets
- Client relationships
- Supplier relationships
- Business goodwill
- A commercial opportunity introduced by one party
- Intellectual property
Ask yourself: What would the other party actually lose if this restriction did not exist?
If you can’t answer this easily, inspect the clause closely. A broad restriction is hard to justify if the other party hasn’t shared sensitive data, introduced valuable leads, or offered a solid commitment. Protecting a party from ordinary competition is not a legitimate interest, and a clause that does only that will not hold.
When does the restriction start?
The start date of a restriction can be as important as its wording.
Check whether the clause begins:
- When the agreement is signed
- When services begin
- When confidential information is first disclosed
- When a commercial introduction is made
- Only after termination
Some restrictions take effect before you even finalise the main deal.
For instance, suppose a manufacturer signs a preliminary document while exploring a potential partnership. If the document immediately stops them from working with certain competitors, they are tied down even if the deal falls through.
The manufacturer should consider whether it makes commercial sense to forgo other opportunities before there is certainty about the deal.
Early restrictions are not automatically invalid, but you should distinguish between:
- The commercial risk of accepting a restriction before the broader deal is confirmed.
- The separate legal question of whether a court would ultimately enforce the restriction.
Even if a court might not enforce a strict clause, it can still limit your operations, weaken your bargaining position, and lead to legal disputes.
How long does the restriction last?
Review the timeframe for each restrictive obligation individually.
Check whether the restriction applies:
- Only during the relationship
- For several months after the relationship ends
- For years after termination
- Indefinitely
Choose a duration that matches the business interest you are protecting.
For example:
- Confidential trade secrets may need long-running protection.
- Exclusivity usually makes sense only when the other party actively provides work.
- A non-solicitation timeframe should directly reflect the client, supplier, or staff relationship you want to safeguard.
Note that duration is one of the things the 2027 reforms may standardise for client non-solicitation clauses. If you are drafting one now, a shorter, better-targeted period is both more likely to be enforceable today and more likely to survive the transition.
How wide is the geographic restriction?
Geographic scope is particularly important in non-compete and exclusivity clauses.
Check whether the agreement applies to:
- One suburb
- One city
- One state
- Australia
- Worldwide activity
Ask yourself: Does this geographic boundary match where the other party actually operates?
A local company can’t easily justify a worldwide restriction if its customers and services stay within one region. On the other hand, a global enterprise has stronger reasons for broader coverage. Geographic overreach is one of the most common reasons restraints fail.
What do you receive in return for the restriction?
Before accepting any restriction, check what the other party gives you in return. Examples include:
- A confirmed engagement
- Payment
- Access to confidential information
- An exclusive opportunity
- A commercial introduction
- Guaranteed volume
- Preferential pricing
- Another contractual promise
Ask yourself: Are you trading your operational freedom for something concrete, or signing away rights before locking in the main deal?
This becomes critical if you accept an exclusivity or non-compete clause without receiving a minimum work guarantee, fixed payment, or guaranteed term.
If a counterparty introduces new restrictions into an existing relationship without offering anything new, that is worth advice before you agree.
How broad is a non-compete clause?
A non-compete clause stops you from competing with the other party, but contracts often define “competition” very broadly.
Check:
- What activities count as competing?
- Which products or services are affected?
- Which competitors are caught?
- The geographic area covered.
- The duration of the restriction.
- Whether passive investment is restricted.
- Whether related entities are covered.
- Whether the restriction continues after termination.
The jurisdiction point most people miss
Where the contract is governed makes a real difference to how a wide restraint is treated.
In New South Wales, section 4(1) of the Restraints of Trade Act 1976 (NSW) provides that a restraint is valid to the extent it is not against public policy. That gives the court power to read an overly wide restraint down to something reasonable and enforce that reduced version. No other Australian jurisdiction has an equivalent provision.
Everywhere else, an unreasonable restraint generally fails. Drafters respond with cascading clauses, offering a series of alternative periods and areas, but courts will not rewrite a clause to rescue it and cascading drafting frequently fails anyway. Just Group Ltd v Peck [2016] VSCA 334 is the cautionary example: the Victorian Court of Appeal held a cascading restraint unenforceable because it was not reasonably necessary to protect a legitimate interest.
Check the governing law clause. A restraint you would treat as survivable under NSW law may simply collapse elsewhere, and a restraint you are relying on for protection may be worth less than you think.
Sale of business restraints are different
Restraints given by a seller on the sale of a business are treated far more generously, because the buyer has paid for goodwill and is entitled to protect what it bought. Longer periods and wider areas are routinely upheld in that context.
This is also the category expressly carved out of the 2027 reforms. If you are selling a business, the restraint you give will continue to be governed by the existing law. If you are buying one, this is the one restraint you can still rely on with reasonable confidence.
Does the agreement stop you from approaching clients, staff, or suppliers?
Contracts often pair non-solicitation and non-dealing clauses, but they produce different practical outcomes.
A non-solicitation clause stops you from actively contacting or poaching clients, employees, contractors, or suppliers from the other party.
A non-dealing clause goes further by stopping you from doing business with those contacts even if they reach out to you first.
Check:
- Who is protected
- Whether the clause covers all customers or only customers connected with the relationship
- Whether prospective customers are included
- Whether employees and contractors are covered
- Whether suppliers are included
- How long the restriction lasts
Ask yourself: Does this restriction protect real relationships that the other party built?
What the reforms do here
This is the area where the 2027 changes bite hardest outside the non-compete ban itself.
Clauses stopping you poaching the other party’s staff are expected to be banned or substantially restricted in employment contexts. And where two businesses agree between themselves not to hire each other’s workers, that arrangement is proposed to become cartel conduct under the Competition and Consumer Act 2010 (Cth).
That second point deserves emphasis, because these arrangements are extremely common and are usually not thought of as legally risky at all. A mutual no-poach clause in a services agreement, a supplier arrangement, or a joint venture is currently an ordinary contract term.
Under the proposed regime it becomes conduct the ACCC can pursue, with penalties attached to both parties.
If your standard contracts contain one, that is worth flagging now rather than in 2027.
Does an exclusivity clause stop you from taking other work?
Exclusivity clauses can directly impact your business right away, even without post-termination limits. They can block you from taking on other clients or working in specific markets.
Check whether:
- Exclusivity applies to all work or only a defined category.
- It covers a geographic market.
- Named competitors are specified.
- The counterparty guarantees a minimum of work in exchange.
- Exclusivity begins immediately.
- It ends if the client doesn’t proceed.
- You can cancel exclusivity if the expected work falls through.
For example, if a marketing agency promises not to serve an industry competitor, but the client has not committed to any spending, the agency loses flexibility while the client risks nothing.
This creates a clear disadvantage: you cannot take new jobs, but the prospective client can delay or cancel at any time.
Does a non-circumvention clause go further than necessary?
Non-circumvention clauses usually apply when one party introduces another to:
- Customers
- Suppliers
- Investors
- Manufacturers
- Referral relationships
- Commercial opportunities
A non-circumvention clause stops you from bypassing the introducer to deal directly with their contact or lead.
Check:
- Which contacts are protected?
- Whether the other party actually made the introduction.
- What conduct counts as circumvention?
- How long does the restriction last?
- Whether pre-existing relationships are excluded.
- Whether the clause prevents unrelated future dealings.
If you already had a relationship with a contact before signing, ensure the contract explicitly excludes them from the restriction.
Is the confidentiality clause broader than confidentiality?
When reviewing a confidentiality clause, check:
- The definition of confidential information
- Permitted use of confidential information
- Permitted recipients
- Duration of confidentiality obligations
- Return or destruction requirements
Never assume that every term in a confidentiality section concerns only secret information.
A confidentiality clause may also include:
- Non-compete restrictions
- Non-solicitation obligations
- Ownership of ideas
- Intellectual property assignment
- Broad indemnities
- Exclusivity commitments
For example, an NDA might define customer lists or business plans as confidential, then ban you from dealing with anyone named in those documents. That goes beyond confidentiality and acts as a non-dealing or non-circumvention restraint.
Before signing an NDA, check if it sneaks in extra restrictions beyond basic data handling. An NDA might define customer lists and business plans as confidential, then prohibit you dealing with anyone named in those documents. That is not confidentiality. That is a non-dealing restraint wearing a different label, and it will bind you the same way.
What happens if the main deal never goes ahead?
Always ask this question when signing NDAs, term sheets, or preliminary contracts before finalising the main deal.
Check whether the restriction automatically ends if:
- Negotiations stop.
- You never sign the main services contract.
- Due diligence fails.
- The parties decide not to proceed.
- No purchase order or engagement is issued.
Early agreements must clearly state:
- When restrictions activate
- Whether they depend on the main transaction proceeding
- What survives if negotiations end
- How long surviving obligations last
Ask yourself: Could you walk away from negotiations tomorrow and still face restrictions for the next 12 months?
If the answer is yes, that deserves close review before signing.
What happens when the commercial relationship ends?
Check which obligations survive termination. This may include:
- Non-compete obligations
- Non-solicitation obligations
- Confidentiality obligations
- Non-circumvention obligations
- Exclusivity obligations
- Return or destruction of information
- Intellectual property rights
Some terms naturally survive contract end dates. For instance, trade secrets, customer databases, and proprietary data require ongoing protection.
Other restrictions require strong commercial reasons to remain in effect post-termination. If a client stops hiring you or the deal falls through, evaluate why a non-compete, exclusivity, or non-dealing term should still bind you.
Also review termination rights. If the other party can end the contract instantly while enforcing a long restriction on you, they hold an unfair advantage.
Could a narrower clause protect the same interest?
Usually, yes. And a narrower clause is more likely to be enforceable, more likely to survive the reforms, and easier for both parties to live with.
Instead of a broad non-compete, consider whether the agreement could use:
- Confidentiality obligations
- Non-solicitation obligations
- Non-dealing limits restricted to specific clients
Instead of broad exclusivity, consider whether it could use:
- Named competitors
- A particular product category
- Exclusivity tied directly to meeting minimum spend targets
Instead of broad non-circumvention, consider whether it could protect:
- Specifically introduced contacts
- Defined opportunities
- A shorter timeframe
Targeted terms protect real interests far better and remove doubt about what your business can do day to day.
Can restrictive clauses be negotiated?
Yes. You don’t have to accept proposed terms just because they appear in a standard template.
Focus your negotiations on:
- When the restriction begins
- Duration
- Geographic scope
- Restricted activity
- Customers or suppliers covered
- Carve-outs for existing relationships
- Minimum commitments supporting exclusivity
- What happens if the main deal falls through
- Termination rights
Before negotiating, identify:
- What stops you from doing normal business?
- What could still bind you if the deal falls through?
- What applies more broadly than the relationship requires?
- What would materially affect future revenue?
What should you do about the reforms right now?
Three practical steps, in order of priority.
- Audit your no-poach clauses. Any agreement where your business has promised not to hire another business’s staff, or where they have promised the same to you, should be identified now. This is the category moving from contract law into competition law, and the change in consequence is significant.
- Review your standard employment and contractor templates. If your templates apply the same non-compete to everyone regardless of seniority or salary, most of those clauses will be unenforceable from 2027. That is worth restructuring before the transition rather than during it, particularly given the notification obligations under discussion.
- Separate your restraints by category. Employment restraints, commercial restraints between businesses, and sale of business restraints are heading into three different regimes. Contracts that blur them, which is most contracts in small business, will be the ones that cause problems.
Restrictive clause checklist before you sign
Before signing, check:
- What type of restriction is it, and is it an employment, commercial, or sale of business restraint?
- What business interest is it protecting?
- When does it begin?
- What do you receive in return?
- What activities are restricted?
- Which customers, suppliers or opportunities are covered?
- How long does it last?
- Where does it apply, and what is the governing law?
- Does it cover existing relationships?
- Does it bind related businesses or individuals?
- What survives termination?
- What happens if the main deal never proceeds?
- Is there a narrower way to protect the same interest?
- What happens if you breach it?
- Can your business realistically comply?
- Will it still be enforceable after the 2027 reforms commence?
When should you get a restrictive clause reviewed?
Consider legal review where:
- The restriction materially affects who the business can work with.
- An exclusivity clause has no corresponding minimum commitment.
- The clause begins before the main contract or engagement.
- The restriction continues for a significant period after termination.
- The geographic or industry scope is broad.
- Important existing clients or suppliers may be captured.
- The agreement contains several overlapping restraints.
- Breaching the clause could trigger significant damages or indemnities.
A legal document review becomes essential when a contract combines confidentiality, exclusivity, non-solicitation, non-dealing, and non-circumvention rules, as their combined effect can severely restrict your business.
Review is particularly worthwhile now if your contracts contain no-poach arrangements or standard-form non-competes, given both are directly in the path of the reforms.
FAQs
Are non-compete clauses being banned in Australia?
For most workers, yes, subject to the bill passing. A draft bill released in September 2026 would prohibit non-compete clauses for workers earning below the Fair Work high income threshold, through amendments to the Fair Work Act 2009 (Cth), with effect expected from 2027. Restraints attached to the sale of a business and its goodwill are carved out.
Does the ban apply to contracts I have already signed?
The transitional arrangements are still being settled, and are expected to include grace periods and employer notification obligations. The safer assumption for a restraint you sign now is that part of its term will run under the new regime, so do not rely on it holding for its full length.
Can my business agree not to hire another company’s staff?
Currently yes, as a contract term. Under the proposed reforms, no-poach arrangements between businesses would be treated as cartel conduct under the Competition and Consumer Act 2010 (Cth) and enforced by the ACCC. If your contracts contain one, review it now.
Does it matter which state my contract is governed by?
Yes. New South Wales is the only jurisdiction with legislation allowing a court to read an unreasonable restraint down to a reasonable one (Restraints of Trade Act 1976 (NSW), section 4(1)). Elsewhere an overly wide restraint generally fails outright.
Are restrictive clauses always enforceable in Australia?
Not automatically. A restraint of trade is prima facie void and is enforceable only so far as it is reasonable to protect a legitimate business interest, with the onus on the party seeking to enforce it. Reasonableness is assessed as at the date the contract was made
What is a restrictive clause in a business agreement?
A restrictive clause limits what one or both parties can do during or after a business deal. It can restrict competition, client contact, supplier relationships, the use of confidential data, or direct dealings with introduced leads.
What should I check before signing a non-compete clause?
Check the restricted activities, affected products or services, named competitors, geographic boundaries, duration, related entities, passive investment rules, and post-termination terms. Always assess what business interest the clause protects.
Can a business agreement stop me from working with other clients?
Yes. An exclusivity clause or non-compete clause may restrict work for other clients, competitors or businesses in a defined market.
What is the difference between non-compete and non-solicitation?
A non-compete clause restricts competing with the other business. A non-solicitation clause generally restricts the active solicitation of specified clients, staff, suppliers, or contacts.
What does a non-circumvention clause mean?
A non-circumvention clause prevents you from bypassing the introducing party to deal directly with their introduced client, supplier, investor, manufacturer, or lead.
Can an exclusivity clause apply before work begins?
Yes. Some exclusivity terms activate immediately upon signing, even before you finalise the primary agreement or purchase order. Ensure the clause ends if the main deal falls through.
What happens if I sign a restriction and the deal doesn’t go ahead?
That depends on the exact wording. Check whether the restriction is automatically cancelled when negotiations end or whether obligations persist for a fixed period.
Can restrictive clauses be negotiated?
Yes. You may be able to negotiate the start date, duration, geographic scope, restricted activity, protected clients or contacts, exclusions for existing relationships, minimum commitments, and termination rights.
