Employment LAW ROUNDUP – THE PROPOSED NON-COMPETE BAN AND USE OF AI IN FAIR WORK COMMISSION CASES
The Federal Government recently released draft legislation to ban non-compete clauses for most Australian workers. Below we summarise the proposed bill and the Fair Work Commission’s new requirements for disclosing the use of AI.
Draft Legislation to Amend Non-Compete Clauses
On 7 September 2026 the Government released the exposure draft of the Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026 and exposure draft explanatory materials. If enacted, the Bill will have significant impacts on employers’ abilities to use ‘non-compete’ clauses, which are ordinarily used to prevent or restrict employees from moving to a competitor after their employment ends.
The exposure draft legislation and explanatory materials can be read here. If enacted, the Bill will introduce reforms including:
Banning non-compete clauses for low- and middle-income workers: Employers will be prohibited from including a non-compete clause in any "employment arrangement" for an employee whose earnings are at or below the high income threshold, which is presently AUD190,100, or who is a casual employee or pieceworker.
The Bill defines non-compete clauses to include clauses that indirectly penalise an employee for moving on, such as clauses that requiring bonuses to be repaid or withholding a severance payment if the employee joins a competitor. The provision is a civil penalty provision with penalties of up to AUD1,092,000 for serious breaches by bodies corporate (such as a corporation). Simply including a banned clause in an employment agreement is a breach, even if the employer never relies on it.
If an employee is subject to a restraint of trade clause but their earnings later drop to or below the threshold, including because the threshold rises, a previously valid non-compete stops operating and threatening to enforce a clause that has stopped operating is unlawful.
Confidentiality clauses, agreed notice periods, paid gardening leave and retention incentives such as deferred bonuses are not affected. Restraints given in a sale of business or shareholder agreement also fall outside the ban.
Banning co-worker non-solicitation clauses: Clauses that stop a former employee from recruiting their former colleagues will be also be banned for all employees, including high-income earners. "Colleagues" is defined widely by the Bill and includes contractors, labour hire workers, apprentices and volunteers. Client non-solicitation clauses are not banned outright, but they will need to meet the new reasonableness requirements described below.
Banning no-poach and wage-fixing agreements: Agreements between businesses not to hire each other's staff, or to fix or cap their wages and conditions will be banned. This includes arrangements requiring permission or a fee before hiring another business's staff, which are typical clauses in labour hire agreements. These arrangements will attract civil and criminal penalties, with enforcement to be by the ACCC. Arrangements within a single corporate group are not caught by these provisions.
Additional rules for remaining restraints of trade: Where restraints remain permitted, for example for employees above the high-income threshold, the restraint will only be valid where it is reasonable and necessary to protect one of two interests: confidential information or client and customer relationships. Cascading clauses will be prohibited, and a clause drafted this way will have no effect, but will not be the subject of a civil penalty.
Introducing limited exemptions: Government bodies may continue to use non-compete clauses where necessary to protect defence, national security or public sector integrity. The no-poach and wage-fixing ban has narrow exemptions where they are ancillary to legitimate business arrangements that are likely to have a net benefit to workers and/or the economy. Professional sporting leagues, such as draft systems and salary caps, are also exempt.
Penalties: Breaches of the new Fair Work Act prohibitions will carry maximum penalties for individuals of 600 penalty units for serious contraventions (presently $218,400), or 60 penalty units otherwise (presently $21,840). Bodies corporate (such as a corporation) face penalties of five times this amount, 3,000 penalty units for a serious contravention (presently $1,092,000), or 300 penalty units otherwise (presently $109,200). Employees, prospective employees, unions and Fair Work Inspectors will all be able to bring proceedings.
Commencement: The reforms will commence on the first 1 January, 1 April, 1 July or 1 October after the Bill receives Royal Assent. They will apply to new employment arrangements and to existing arrangements that are varied after commencement. Penalties for including banned clauses will only apply to arrangements entered into more than six months after commencement, giving employers time to implement appropriate employment agreements.
In the event the Bill is passed, it is critical for employers to review their template contracts and policies ahead of the commencement of the reforms to ensure that the agreements do not contain prohibited non-compete clauses. We will provide a further update if the Bill is enacted into legislation.
FWC Requires Disclosure of Use of AI from 20 October 2026
The FWC has announced that from 20 October 2026, litigants will be required to disclose their use of AI in all claims and adhere to a Guidance Note where AI has been used. This follows a growth in FWC cases of 70% over the past three years, which has largely been attributed to AI assisting litigants to file claims.
The Guidance Note requires litigants to disclose the use of AI, independently check each fact in their Application and record on the Application that this has occurred, and expressly states that costs can be ordered against litigants who do not adhere to the requirements.
In the recent case of Sadnan Khan v Aldi Pty Ltd [2026] FWC 3144, the FWC took the rare step of imposing a costs order against a self-represented litigant who used artificial intelligence to make an unfair dismissal claim against his former employer, ALDI. The FWC found that the applicant “relied heavily on artificial intelligence to commence and continue his claim” which, according to the FWC, had no reasonable prospects of success. The FWC held the Applicant acted unreasonably by continuing his claim after it should have been clear that on his own version of events, he could not win. Pursuant to s.400A of the Fair Work Act, the Applicant was ordered to pay ALDI’s legal costs totalling $1,230. Again, this highlights that the FWC is seeking to address some of the burden placed on employers by unmeritorious claims.
A copy of the Guidance Note can be found at https://www.fwc.gov.au/documents/resources/guidance-note-use-of-generative-ai-in-commission-cases.pdf
Contacts
Keira Nelson
+61 413 198 778
Tom Gannon
+61 292 309 475