Treasury draft non-compete reforms put adviser contracts under review

Treasury has released draft legislation proposing restrictions on non‑compete clauses and related restraints, opening a consultation that advice businesses should treat as a prompt to review their employment, partnership and transaction documents.

The proposal is relevant to financial‑planning practices because adviser relationships, client transitions and succession arrangements can involve restrictions on post‑departure work, client approaches, staff recruitment and the use of confidential information. The draft would not create an immediate compliance deadline, but it could change the value and enforceability of some restraints once enacted.

The consultation materials — including the draft legislation and explanatory material — are the primary source for the proposal. They should be read together rather than relying on the consultation title or commentary about the policy. Treasury consultation, draft legislation and explanatory material (https://treasury.gov.au/consultation/c2026-801178).

What Treasury is proposing

The central proposal is to restrict the use of non‑compete clauses and other restraints that prevent a worker from competing with a former business or working for a competitor after the relationship ends.

The draft also deals with restraints that can produce a similar economic effect, including provisions restricting a worker from dealing with clients or from moving to another business. It is therefore not sufficient to search existing agreements only for the words “non‑compete”. The relevant question is whether a clause operates as a prohibited or restricted restraint under the proposed scheme.

The proposal is directed at worker arrangements, rather than being limited to conventional employment contracts. That makes the scope important for advice businesses using employees, contractors or other forms of adviser engagement. The treatment of partners, shareholders, authorised representatives and parties to a business sale must be checked against the definitions and exceptions in the draft itself; the proposal should not be assumed to apply identically to every relationship.

The draft also recognises circumstances in which a restraint may serve a legitimate commercial purpose, including arrangements connected with the sale of a business. Those provisions are particularly relevant to practice acquisitions, mergers and succession transactions. Whether a restraint falls within an exception will depend on the drafting and the circumstances of the transaction. A clause should not be treated as protected merely because it appears in a sale, shareholder or succession agreement.

The proposed consequences matter as much as the prohibition. A restraint that is prohibited under the enacted scheme may be unenforceable, and the draft provides an enforcement framework for the proposed restrictions. Practices should obtain legal advice on the precise operation of that framework, including who may enforce the rules, what remedies may be available and whether penalties or other consequences apply to particular conduct.

What the draft does — and does not — do to current contracts

The draft is not yet law. The consultation process may result in amendments, and the final legislation will determine the commencement date, scope and transitional arrangements.

The draft contains proposed rules dealing with the application of the reforms to existing and future arrangements. Those rules need to be examined separately from the substantive restrictions. In particular, practices should establish whether a clause was entered into, varied, renewed or relied on before or after the relevant commencement event. A change to an existing agreement may have different consequences from leaving it untouched, while a new agreement may be assessed under the enacted rules from commencement.

The practical position is therefore not that every current restraint will immediately disappear. Nor is it safe to assume that an existing clause will remain enforceable indefinitely. Until the legislation is enacted, the precise treatment of current agreements, variations and transitional arrangements remains subject to the final drafting and commencement provisions.

The specific practice implications

For adviser employment agreements, the review should identify provisions restricting post‑departure employment, competition, client contact, staff recruitment and the use of information. The proposed regime may make a broad post‑employment restraint harder to rely on, particularly where a narrower protection could address the firm’s legitimate interest.

For authorised‑representative and contractor arrangements, the issue is not resolved by labelling the relationship something other than employment. The draft’s definitions and application provisions need to be checked against the actual arrangement, including who controls the client relationship, how the adviser is engaged and which party owns or holds relevant information.

For shareholder, partnership and succession documents, practices should separate restrictions connected with a genuine business sale from ordinary restrictions imposed on a continuing or departing owner. The draft’s treatment of those arrangements may be different, but an exception is not a substitute for checking the statutory conditions.

For acquisitions and mergers, the proposed reforms create a due‑diligence issue. A purchaser should identify which restraints are being relied on to protect goodwill, client continuity or the value of the transaction, then test whether the draft — and ultimately the enacted legislation — would permit those restraints. The existence of a clause should not be treated as proof that it will protect the expected value of the deal.

Confidentiality obligations, intellectual‑property provisions, client records and information‑security controls also need to be reviewed. Their interaction with non‑compete and non‑solicitation provisions is a legal question under the proposed scheme. A practice should not assume that a confidentiality clause can be used to achieve indirectly what a prohibited non‑compete cannot achieve directly, or that a garden‑leave provision will automatically be treated in the same way as a post‑termination restraint.

What practice owners should do now

• First, create an inventory of employment, contractor, authorised‑representative, shareholder, partnership, acquisition and succession agreements containing restraints or post‑termination obligations.
• Second, classify each clause by function: competition, client contact, staff movement, confidentiality, intellectual property, garden leave or protection of sale goodwill. Record whether the provision is part of a new engagement, an existing agreement, a variation or a transaction.
• Third, have employment and commercial counsel map those provisions against the draft legislation, including its definitions, exceptions, proposed enforcement mechanisms and transitional rules. This should be a legal review of the actual text, not a generic update to a compliance checklist.
• Fourth, avoid issuing new templates that assume the draft will be enacted unchanged. New contracts and transactions should identify the commercial interest the practice is trying to protect and use provisions that are supportable under the law in force at the time.
• Finally, consider whether to respond to Treasury’s consultation. Advice businesses involved in adviser recruitment, practice sales or succession can provide useful evidence about how restraints affect client continuity and transaction value. Submissions should address the draft legislation and its proposed operation, rather than treating the policy announcement as the final rule.

A review, not a compliance deadline

The proposal is significant for advice businesses, but it does not yet invalidate existing contracts or require practices to rewrite every agreement immediately. Its eventual effect will depend on the final legislation, any amendments made after consultation, the commencement provision and the transitional rules.

The immediate task is more focused: identify where the business relies on restraints, understand which arrangements may fall within the proposed scheme and obtain legal advice before entering into, varying or enforcing an agreement. For practices whose value depends on adviser continuity and client relationships, that review should form part of transaction and people‑risk management — without assuming that a restraint clause will provide protection that the final law does not allow.