Non-competes are going. What that means for your sale
The Government has announced a ban on non-compete clauses for workers below the high income threshold from 2027. The restraint you give a buyer is a different animal, and it is worth knowing which is which.
General information only, not financial, legal or taxation advice. Tony Pope holds Queensland Office of Fair Trading licence 4963575.
The short version
- The announced ban targets non-compete clauses in employment contracts for workers earning below the Fair Work high income threshold, with a commencement date of 2027.
- A vendor restraint, the promise you give a buyer not to compete after you sell, is a different legal category and is not what the announced reform is aimed at.
- If your business relies on employee non-competes to hold customers, a buyer will want to know what holds them once the clause does not.
- The reform is announced policy with consultation behind it. Treat it as direction rather than as settled drafting, and get your solicitor's read before relying on either side of it.
There has been a steady run of coverage about non-compete clauses being banned, and it has reached owners in a slightly mangled form. Several people have asked me some version of: does this mean I cannot stop the buyer's competitor hiring my staff, or worse, does it mean I cannot be paid for goodwill any more.
Neither. But the distinction is worth having clearly, because two quite different things are being called by the same name.
The two restraints
The employment non-compete. A clause in a staff member's contract saying that after they leave they will not work for a competitor, or not within a radius, or not for a period. This is the one the announced reform is aimed at, for workers earning below the Fair Work high income threshold, with a commencement date of 2027.
The vendor restraint. The promise you give the buyer when you sell, that you will not set up in competition against the business you just sold them. Different category, different legal history, and it is not what the announced ban is directed at.
Courts have long approached those two differently, and the reason is straightforward. A buyer who pays for goodwill is paying for customer relationships that walk out the door with the seller unless something holds them. The restraint is part of what is purchased. An employee who signs a non-compete has generally not been paid separately for it and has their livelihood on the other side of it.
Why it still touches your sale
Because of what employee non-competes were quietly doing in some businesses.
If your customer relationships are held by three account managers, and what stops those three taking the book across the road is a clause in their contract, then a change to the enforceability of that clause is a change to the durability of your revenue. A buyer doing diligence in 2027 will ask what holds those customers, and "their contracts say they cannot leave" will be a weaker answer than it is today.
That is not a reason to panic. It is a reason to know the answer to the real question, which a good buyer was asking anyway: what holds your customers if the person who services them leaves.
What actually holds customers
Contracts with the business, not relationships with a person. Term, renewal, notice period, and the name of the counterparty.
Switching cost. Integration, tooling, accreditation, stock holdings, systems the customer has built around you.
Service that is documented rather than remembered. If the process is written down and any competent operator can run it, the relationship is with the business.
Non-solicitation and confidentiality, which sit separately. These are different obligations to a non-compete and the consultation material treats them as their own question. Worth knowing which of the three your contracts actually contain, because owners often say non-compete and mean confidentiality.
The honest status of this
This is announced policy with a consultation process behind it and a commencement date in 2027. It is not in force, the final drafting is not settled, and I am not going to tell you how a court will read a clause that does not yet have legislation around it.
What I will say is that the direction is clear enough to plan against, and that everything worth doing in response is worth doing anyway: know which restraints are in your contracts, know which staff hold which relationships, and build the answer to "what holds this customer" into the business rather than into a clause.
A buyer has always paid more for revenue that stays. That has not changed and it is not going to.
Common questions
Will I still be able to give a buyer a restraint when I sell my business?
The announced reform is directed at non-compete clauses in employment contracts for workers below the high income threshold. Restraints given by a vendor on the sale of a business have long been treated differently by the courts, because the buyer is paying for goodwill and the restraint protects what was bought. Nothing announced changes that category, but the drafting of your particular restraint is still a question for your solicitor.
What is the high income threshold?
It is a figure under the Fair Work Act that is indexed each year and is used for several purposes including unfair dismissal eligibility. The announced non-compete ban is framed by reference to it, so the threshold on the day of commencement is what will matter rather than the figure quoted when the policy was announced.
Should I change my employment contracts now?
Not in a rush, and not on the basis of a news article. The sensible step is to know which of your contracts contain non-competes, which staff they cover, and what else in those contracts protects the business, because confidentiality and non-solicitation obligations sit separately. That review is useful whatever the final legislation says.
Keep reading
All notes on selling a business · All seller guides · What is my business worth?
Check it yourself
Primary sources, none of them affiliated with me and none of them endorsing this site. Where anything here differs from an official source, the official source is right.
Links open on external government and industry websites. The full list sits on licensing, registers and official sources.
Ask what it is worth
Free, in writing, and nobody finds out you asked. Tell me the trade and the suburb and I will do the rest.
Nobody finds out you are selling. This goes to me only, into my own database in Sydney. I will not contact your accountant, your landlord, your bank or your staff, ever, unless you ask me to.
If you would rather not put anything in writing yet, ring 0431 124 128. Prefer to pick a time yourself? Book a time in my diary.
Thinking about selling?
Thirty minutes, on the phone or in person, at a time that suits you including evenings. You will get a straight read on where the business sits today and what would move the number. It costs nothing, there is no obligation, and nobody finds out you asked.