Can you stop an employee working for a competitor?

Sometimes, and it depends almost entirely on what you wrote in the contract before they started.

There is no set number of months the law allows. A restraint runs for as long as a court decides is fair, and no longer. Which means the clause you copied from a template four years ago is doing one of two things right now. It is protecting your client list. Or it is worth nothing at all.

Most owners find out which one on a Monday morning, and by then the answer was decided years ago.

What this clause actually is

Open an employment contract and you will usually find three separate clauses sitting near each other. They get talked about as one thing. They are not.

The non-compete. Stops the person working in a competing business for a set period after they leave. This is the one everybody argues about, and the hardest of the three to hold on to.

The non-solicit. Stops them approaching your clients, or your staff, after they leave. Narrower, and much easier to defend, because you are not stopping them earning a living. You are stopping them taking what was yours.

The confidentiality clause. Stops them using your pricing, your supplier terms, your methods. It has nothing to do with where they work next.

They are tested separately. If your non-compete falls over, the other two are still standing. That matters more than most owners realise, and we will come back to it.

What this means for your business

Here is the honest version. A non-compete does not stop someone competing with you. It gives you the right to go to court and ask a judge to stop them, and you have to convince the judge it is fair.

That is a different thing, and it is worth being clear-eyed about it. Enforcement means an urgent application, legal costs, and a hearing where a judge who has never met your business decides whether your clause went too far.

So the practical question is not "do I have a non-compete". It is "if I ever had to run this, would it survive". Because a clause that would not survive is doing exactly nothing for you. It sits there looking like protection, and it discourages the honest employees who read it, while the one person you actually needed to stop walks straight through it.

Where it comes from, and when it applies

The rule is older than any Act. Courts have taken the view for centuries that people should be free to work, so a clause stopping someone earning a living starts off void.

That is the starting position. The clause is invalid, and it is on you to show it was fair. Not on them to show it wasn't.

To get there you have to point at something real you were protecting. Courts accept a few things: confidential information, trade secrets, the goodwill in your client relationships. What they do not accept is "we did not want the competition". Wanting less competition is not an interest the law protects. It is the thing the law is suspicious of.

Now the part that catches people. Fairness is judged as at the day the contract was signed. Not the day they resigned. Not the day you found out where they went.

So the facts that feel most important to you — she left with the client list, she went straight to our biggest rival — arrive too late to help. The court looks back at the person you hired, in the role you hired them for, and asks whether that clause was reasonable for that person on that day.

Which is why this is a drafting problem, not a dispute problem. Everything is decided before anyone resigns.

What happens when you ask for too much

This is the part that catches most owners out.

If your clause is too wide, you do not get a smaller version of it. You get nothing.

A court is not there to redraft your contract into something reasonable. In most of Australia it can delete words, but it cannot rewrite them. So "three years, anywhere in Australia, any business of a similar nature" does not quietly become "six months, 15 km". It fails, and the person walks out the door with no restraint on them at all.

Sit with that for a second, because it inverts how the clause feels. The owner who wrote three years believes she is better protected than the owner who wrote six months. She is worse protected. She has a clause a judge will not touch. He has one a judge might.

Overreach is not caution. It is the risk.

Why your state changes the answer

Same clause. Same resignation. Different outcome, depending on where the business is.

New South Wales has an Act nowhere else has. Under section 4 of the Restraints of Trade Act 1976 (NSW), a restraint is valid so far as it is not against public policy, and the Supreme Court can cut an overreaching one back to something workable. It is not a guarantee, and it has not been applied consistently, but the power is there.

In Victoria, Queensland, Western Australia and everywhere else, it is not. A court can strike words out. It cannot put better ones in.

That single difference is why nearly every Australian contract uses what lawyers call a cascading restraint. Instead of one period, the clause lists several: 12 months, then 6, then 3. Instead of one area, it lists several: the state, then the metro area, then 15 km. If the top rung is too much, a court can enforce a lower one without rewriting anything.

They work, up to a point. Stack too many combinations in and the clause collapses, because nobody can tell what was actually agreed.

And here is the thing you need to know if you are drafting this week. The draft legislation Treasury released on 7 September 2026 says a cascading restraint "is not permitted". Not narrowed. Not permitted.

So the standard fix is on borrowed time. For a contract you send tomorrow, a short ladder is still the drafting the current law rewards. But do not build your protection on it, and expect to redraft when the Bill passes. We come back to that below.

What's changing — and what isn't

You will have seen posts saying non-competes are banned in Australia. They are not. But something real did just happen, and it is worth getting the sequence right.

On 7 September 2026 Treasury released draft legislation for consultation: the Treasury Laws Amendment (Banning Unfair Non-Competes) Bill 2026. Consultation closes on 2 October 2026.

A draft is not a law. It is not yet a Bill before Parliament. It is the Government showing its working and inviting comment. It can change, and parts of it usually do.

What the draft would do, according to its explanatory materials:

• Ban non-compete clauses for anyone earning under the high income threshold. That is the existing threshold in the Fair Work Act 2009 (Cth), and it is $190,100 for the year from 1 July 2026

• Ban clauses that stop a former employee approaching your remaining staff, for every employee, at any income

• Ban cascading clauses

• For restraints that remain allowed, require that they protect a specific interest you can name — confidential information, or your relationships with customers and clients — and that they are reasonable

What the draft leaves alone: confidentiality clauses, which the explanatory materials say are not non-compete terms at all, and restraints given when someone buys or sells a business. Non-competes for people earning above the threshold stay available, provided they meet the new requirements.

What the draft does not mention: clauses stopping a former employee approaching your clients. The explanatory materials are silent on it. Silent is not the same as safe, and it is the one to watch.

When it would start. Not a fixed date. The draft says it commences on the first 1 January, 1 April, 1 July or 1 October after the Bill receives Royal Assent. So the earliest realistic date depends on how quickly Parliament moves, and nobody knows that yet.

The part most owners will miss. The draft applies to employment contracts made, or existing ones varied, on or after it commences. A contract already signed and left alone is not caught. Vary it after commencement — a pay rise recorded in a new letter, a change of role — and it is. That single line decides whether your current contracts are affected at all.

What it would cost to get wrong. Up to 60 penalty units for a breach, or 600 for a serious one. At the current penalty unit of $364, that is $21,840 and $218,400. For a company, the draft multiplies both by five: $109,200 and $1,092,000.

Until any of that becomes law, the clause in your contract is governed by exactly the same law it was governed by five years ago.

How to protect your business

Five things, and you can check them in the contract on your desk in about ten minutes.

1. How long. Is there one fixed period, or a ladder? A single 24-month restraint on a shift supervisor gives a court nothing smaller to fall back on. Shorter periods are easier to hold, and for most roles the honest answer is that your client relationships are either re-secured within a few months or they were never yours. The ladder is on the draft's list, so treat it as a fix for now rather than for good.

2. How far. "Australia" is a problem for a business that trades in three suburbs. The area you can defend is the area you can show you actually have customer connections in. Draw it around your trading reality, not your ambitions.

3. What they can't do. There is a wide gap between "must not work for a competitor" and "must not service the clients they dealt with while working here". The second is narrower, easier to defend, and in most cases is the thing you actually care about.

4. Who it covers. If every person in the business signs the same restraint, from the delivery driver to the sales director, it is hard to argue each one was protecting something real. The interest has to exist for that person.

5. What sits beside it. Confidentiality, ownership of work, client non-solicit, notice period, garden leave. Check they are all there and all drafted properly. This is the part that pays off.

Best case: what a clause that holds looks like

The difference is smaller than you would think.

The version that fails:

The Employee shall not, for a period of 3 years following termination, anywhere in Australia, engage in any business of a similar nature to that of the Employer.

Too long, too wide, and it restrains an entire industry rather than anything belonging to you.

The version a court has something to work with:

For 6 months after finishing, within 15 km of the office you worked from, you must not provide services of the kind you provided here to any client you personally dealt with in your last 12 months.

Same intention. Tied to a period you can justify, an area you trade in, and clients you can name. Under the current law you could add a fallback — "or 3 months", "or the metropolitan area" — and a court that thought 6 months was too much would have somewhere to land. The draft legislation is aimed squarely at those fallbacks, so if you add them, know they have a shelf life.

Nobody can promise you a clause will hold. What you can do is give a judge a version that is defensible, instead of one that is easy to throw out.

What else protects you when this clause doesn't

If the non-compete is the only thing standing between you and a competitor, the contract was built wrong. These do more work, more reliably, and the draft legislation does not touch the first three.

Confidentiality. Pricing, margins, supplier terms, methods. Written to survive the employment, not just to cover it. The explanatory materials say in terms that a confidentiality clause is not a non-compete.

Ownership of work. Everything created during employment belongs to the business. Obvious, frequently missing, and a real problem when the person was building something.

Notice and garden leave. A proper notice period, and the right to keep someone away from clients while it runs, buys you the weeks you need to protect the relationship. Quietly, it often does more work than the restraint.

Client non-solicitation, with a caveat. They work wherever they like, but they do not ring your clients. Easier to defend than a non-compete, because it stops one act rather than a career. The caveat: the draft does not mention it either way, so it is not settled ground.

Staff non-solicitation — read this one carefully. Stopping a departing employee recruiting your remaining team has always been the easiest restraint to defend. The draft would ban it outright, for every employee regardless of what they earn. If that clause is the backbone of your protection, it is the clause to think hardest about now.

When to call a lawyer

Three situations where a checklist is not enough, and it is worth the fee.

Senior people with equity. Once a restraint is tied to a shareholders agreement or an incentive plan, the analysis changes and the stakes are higher.

Selling or buying a business. Restraints given as part of a sale are treated differently, much longer periods are accepted, and the draft legislation leaves them alone. Do not reuse an employment restraint here.

Someone already gone and already competing. That is a live dispute, and it turns on timing and evidence rather than drafting. Get advice this week, not next month.

What this doesn't cover

Restraints in shareholder or partnership agreements, restraints given on the sale of a business, and obligations owed by company directors. Each is its own area, with its own rules.

Verified 8 September 2026, against the draft legislation and explanatory materials on treasury.gov.au, the high income threshold table on fairwork.gov.au, and the penalty unit value on accc.gov.au. Consultation on the draft closes 2 October 2026. The text can change before anything reaches Parliament, and this page will be updated when it does.

Check the clause before it becomes the dispute. Upload the employment contract you use today. The restraint is scored 0 to 100, the state rules that apply to it are named, and a step-down version comes back beside the clause you have now.