WRITTEN BY John Wilson & Kieran Pender
At first glance, one of the Albanese government’s major industrial relations reforms for its second term will not be felt by the Australian public service.
In its final budget before the election, the federal government announced it would regulate the use of restraint of trade clauses which limit workforce mobility. Following its landslide re-election, this reform is expected to be among the headline IR reform measures in the new term of parliament.
But public sector employees do not face restraint of clauses; prohibitions on movement, whether within the public service or beyond, are not found in the Public Service Act or in the employment contracts of public servants. So, nothing to worry about?
To the contrary, there are several reasons why this significant reform will have implications for the public sector. First, restraint of trade clauses are often found in the contracts of employees of firms who contract to government, and even sometimes in labour hire arrangements.
Second, the government has also proposed to consider the possible regulation of non-solicitation clauses, which could again have a significant impact on those contracting to governments. And, if these developments have the desired effect, it might lead to greater workforce mobility – including increased movement between the public and private sector.
Before considering the proposals in more detail, it helps to start with a brief history lesson.
Australian employment law evolved from English common law, which had initially been sceptical of efforts to restrict labour mobility. In 1614, distinguished jurist Sir Edward Coke wrote in a judgment that “no man could be prohibited from working in any lawful trade, for the law abhors idleness, the mother of all evil.”
However, in time the law came to recognise a legitimate business interest in regulating the conduct of employees after their employment came to an end. The seminal case arose in 1894. Thorsten Nordenfelt had invented an early iteration of a machine gun, and then sold his business to another firearms manufacturer. As part of the sale, he agreed not to compete with it for a period of 25 years. He later breached the agreement, and defended the subsequent claim by argument the restraint should be considered unlawful.
The House of Lords rejected Nordenfelt’s argument, holding that the restriction on his later activities was a legitimate aspect of the commercial sale of his business. In doing so, the court set down the doctrine which remains influential today. Restraints of trade will be void and unenforceable as contrary to public policy unless the restriction is reasonable. “Reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public,” as was said in the Nordenfelt case.
So far, so simple. But courts in Australia have spent the subsequent century and a bit being forced to consider whether restraints, in employment and other contractual settings, are reasonable.
This task has been made harder by the trend towards cascading restraints – clauses which purport to apply iteratively to a greater and greater extent, allowing a court to invalidate some but not all of the restraint. For example, a common restraint clause might prohibit the worker from engaging in the same sector for (a) 12 months; (b) six months; or (c) three months, across (i) Australia; (ii) the Australian Capital Territory; or (iii) just the Canberra CBD.
It is for these and other reasons that the Albanese government has decided to act. In recent decades there has been greater scrutiny on the economic and social impact of restraint of trade clauses, and their growing prevalence beyond senior executive roles. And even where restraint clauses may be invalid, they have a chilling effect on labour mobility because few employees want to face the legal risk.
“Workers should not be handcuffed to their current job when there are better opportunities available for them,” the government’s press release said, on announcing the reform proposal. “Right now, more than three million Australian workers are covered by these clauses, including childcare workers, construction workers, and hairdressers.”
The government has suggested that the reform could increase wages by up to four per cent, and add billions to the economy in increased productivity.
The most common restraint of trade term in the employment context is what is often described as a non-compete – an agreement that the worker will not move to a competitor, or open their own business, within a certain timeframe and geographical area.
Labor is proposing to impose a blanket prohibition on non-compete clauses, for workers earning less than the high-income threshold (presently $175,000). Such clauses will become void.
Other restraints include non-solicitation clauses, which may prevent an outgoing worker taking clients or other staff with them, en route to a competitor or their own start-up firm. Labor has pledged to consider and consult whether and how to regulate such clauses; it has also said it will consider whether to regulate non-compete clauses for those earning above the high-income threshold.
The reforms have not yet been legislated, so the exact detail remains to be seen. The government has indicated its changes will take effect from 2027, and operate prospectively, so there will be time for businesses to get their affairs in order.
While we await the specifics, there is no doubting that this is significant reform which will have a major impact on the industrial relations landscape. And despite not applying directly to the public sector, it will impact the APS, too.
First published 23 June 2025 in the Canberra Times – “Labor’s next big IR reform will affect the public service, too”