The Future of Non-Compete Clauses in the NFP Sector

The Future of Non-Compete Clauses in the NFP Sector

For many Not-for-Profits (NFPs), employment contracts include various post-employment restraints, often as a way to safeguard intellectual property, funding relationships or workforce stability. Among these, non-compete clauses (NCCs) have traditionally served as a tool to prevent employees from switching to work with a competitor.

With significant legal reforms on the horizon, it’s important for NFP leaders to understand how non-compete and other restraint clauses are being regulated, and what changes may soon affect their use.

What Are Non-Compete Clauses and Why Do They Matter?

Non-compete clauses restrict an employee from working for a competitor for a specified time and within a certain location after leaving your organisation.

These are usually justified as a way to protect:

• Confidential organisational knowledge;
• Funding and donor relationships; and
• Investments in employee training.

Related restraint clauses often include:

• Non-disclosure agreements (NDAs) – to stop ex-employees sharing sensitive information.
• Client non-solicitation clauses – to prevent staff from taking donors or clients with them.
• Co-worker non-solicitation clauses – to stop departing staff from encouraging colleagues to follow them to a new role.
• No-poach agreements – between employers to avoid hiring each other’s staff.
• Wage fixing agreements – used to cap wages without employee consent.

Traditionally, employers have argued these restraints are necessary to protect legitimate business interests, such as proprietary knowledge or client contacts, and to safeguard ongoing investment in workforce development. However, recent research and growing scrutiny suggest that these clauses may be creating unintended negative consequences.

The Legal Landscape

Currently, under Australian law, non-compete and other restraint clauses are presumed void unless they are reasonably necessary to protect an employer’s legitimate interests.

Each clause is judged on its:

• Duration;
• Geographic scope;
• Business interest protected; and
• Employee’s role and circumstances.

Courts can strike out unreasonable clauses entirely or, in NSW, even ‘read down’ a clause to make it more reasonable under the Restraints of Trade Act 1976.

Reforms Coming

The Albanese Government has signalled major changes.

With a re-election promise including the following proposals taking effect from 2027:

1. Ban non-compete clauses for employees earning less than the high-income threshold (currently $175,000 under the Fair Work Act 2009 (Cth)).
2. Prohibit wage-fixing and no-poach agreements, even with employee consent.
3. Restrict the misuse of restraint clauses in low-paid and vulnerable industries.

These proposals are backed by research and policy concerns. The Federal Treasury’s 2024 Issues Paper found that restraints are increasingly common, even in roles where they may not be justified. Treasury noted the particular harm caused to workers earning less than $45,000, who may lack the resources to challenge unreasonable terms.

Submissions to the consultation process revealed a broad consensus: restraint clauses should be reformed to better reflect their original purpose – protecting genuine business interests, not stifling fair competition or limiting job opportunities.

The Research Case for Reform

According to the E61 Institute, increased use of NCCs correlates with a decline in job mobility, especially among low-skilled workers.

Their findings include:

• Workers subject to NCCs earn 4% less on average compared to those bound only by NDAs.
• NCCs are associated with slower wage growth in the early years of employment.
• Low-skill workers see the biggest drops in job mobility and wages.
• High-skill workers affected by NCCs spend more time unemployed between jobs.

This research suggests that restraint clauses may be limiting career progression and contributing to broader economic inefficiencies, particularly for workers in industries like care, disability support, cleaning, and beauty, many of which overlap with the NFP sector.

Workforce Mobility Is Growing – With or Without NCCs

One important trend already increasing job mobility within the NFP sector is the mandatory roll-out of portable long service leave (LSL) schemes in many states. These schemes allow eligible employees, particularly in sectors like community services, to carry their long service leave entitlements between different employers within the same industry. For many NFPs, this means that employees now have more flexibility to change roles without sacrificing their entitlements, contributing to a more mobile workforce.

As both portable LSL schemes and legal reform accelerate, NFPs will need to reassess how they retain talent, focusing less on restrictive clauses and more on values-based leadership, collaboration within the sector, and meaningful career development pathways.

What The NCC Review Means for NFPs

For Not-for-Profits, especially those operating in sectors like community services, health, education, or cleaning, these reforms carry significant implications.

Many NFPs employ low to mid-income workers, and under the proposed rules, any non-compete clauses imposed on them may soon become unenforceable or even illegal.

The message from policymakers is clear: use restraint clauses only where genuinely necessary, and not as a default in standard employment contracts.

How We Can Assist

Non-compete clauses are no longer just a contractual clause, they’re at the heart of national debates about fairness, competition, and worker mobility. For the Not-for-Profit sector, it’s critical to align internal employment practices with these broader goals of equity.

With the impending changes, now is the time to commence reviewing your practices and defaults.

At The Breakthrough Office, we support Not-for-Profits to build fair, future-focused employment practices that reflect both compliance and organisational values.

We can assist your organisation to:

• Audit current employment agreements for enforceability;
• Update your restraint clauses in line with pending reforms;
• Develop alternatives to NCCs; and
• Train your leadership team in ethical employment practices.

Our approach balances your need to protect confidential relationships and data, while respecting workers’ rights to fair employment opportunities.