If you’re hiring staff, engaging contractors, or selling a business, you’ve probably worried about what happens when someone leaves and takes your clients, your team, or your know-how with them.
That’s where restraint clauses come in - including the well-known “non-compete clause”. But in Australia, a non-compete clause isn’t automatically enforceable just because it’s written into a contract. If it goes too far, it may be struck out entirely.
In this guide, we’ll walk you through a practical non-compete clause Australia example (with multiple sample options), what makes restraints enforceable (or risky), and how to structure your contracts so you protect your business without overreaching.
What Is A Non-Compete Clause (And When Do Small Businesses Actually Need One)?
A non-compete clause (often called a “restraint of trade clause”) is a contract term that limits what someone can do after their relationship with your business ends.
For example, you might want to stop a former employee from:
- opening a competing business nearby
- working for a direct competitor
- providing similar services to the same client base
In a small business, these risks can feel very real - because your goodwill is often tied to personal relationships, local reputation, and a small pool of customers.
Non-Compete vs Non-Solicit vs Confidentiality (They’re Not The Same)
Many business owners reach for a non-compete clause when a different restraint would actually fit better (and be easier to enforce). Here’s the practical breakdown:
- Non-compete: restricts working in the same industry or for competitors (usually the hardest to enforce).
- Non-solicitation: restricts approaching your customers, suppliers, or staff (often more enforceable because it targets a specific business interest).
- Confidentiality: prevents misuse/disclosure of your confidential information (crucial, but it doesn’t stop competition by itself).
Most businesses are best protected by combining these tools thoughtfully inside an Employment Contract, rather than relying on a broad non-compete alone.
Are Non-Compete Clauses Enforceable In Australia?
They can be - but only if they are reasonable and protect a legitimate business interest.
As a general principle in Australia, restraints of trade are presumed to be unenforceable unless the party relying on the restraint (usually the business) can justify it. Whether a clause is enforceable is highly fact-specific and can also turn on the wording of the clause and the law in the relevant State or Territory.
What Counts As A “Legitimate Business Interest”?
Courts are more likely to enforce a restraint if it protects something real and specific, such as:
- client and customer relationships (especially where the person had strong influence over those clients)
- confidential information (pricing, margins, supplier terms, internal processes, strategy)
- goodwill (particularly in a sale of business context)
- workforce stability (preventing staff “poaching” in some circumstances)
What Makes A Non-Compete Clause “Reasonable”?
Reasonableness depends on the situation, but the most common pressure points are:
- Duration: how long does the restriction last?
- Geography: what area does it cover?
- Scope: what activities are actually restricted?
If your clause is broader than necessary (for example, “you can’t work anywhere in Australia in any similar role for 24 months”), you’re increasing the chance it won’t be enforced at all.
It’s often better to have a carefully limited clause that is genuinely enforceable, rather than an “everything” clause that looks tough but doesn’t hold up when you need it.
Non Compete Clause Australia Example: Practical Sample Clauses (And When To Use Them)
Below are practical sample clauses to show how restraints are commonly structured. These examples are general drafting samples only - you’ll still want the clause tailored to your business, role type, industry risks, and the State or Territory that applies.
Example 1: Non-Compete Clause (Employee) - Narrow Scope
This style is more realistic for many small businesses because it focuses on direct competition and a sensible timeframe.
The Employee must not, for a period of 3 months after the Termination Date, within a 10 kilometre radius of the Business Premises, be engaged or concerned in any business that:
(a) provides services that are the same as, or substantially similar to, the Services; and
(b) competes with the Business.
When it can make sense: customer-facing roles in local markets (e.g. clinics, studios, local services) where geography is a real competitive boundary.
Example 2: Non-Compete Clause (Senior Role) - Tied To “Material Competition”
This kind of drafting can help avoid accidentally catching work that isn’t really competitive.
The Employee must not, for 6 months after the Termination Date, be employed by or provide services to a Competing Business in a role that is the same as or substantially similar to the Employee’s Role, where that role would reasonably be expected to:
(a) involve the use of Confidential Information; or
(b) involve dealings with Key Clients.
When it can make sense: senior staff who are close to strategy, pricing, supplier terms, or major client relationships.
Example 3: Non-Solicitation Of Clients (Often More Enforceable Than Non-Compete)
If your biggest concern is client loss (not competition itself), this is often the cleaner option.
The Employee must not, for 12 months after the Termination Date, directly or indirectly solicit, canvass, approach or accept an approach from any Client of the Business with whom the Employee had dealings in the 12 months before the Termination Date, for the purpose of providing goods or services that are the same as or similar to the Services.
Why businesses like it: it’s targeted, role-connected, and directly protects goodwill.
Example 4: Non-Solicitation Of Employees (Anti-Poaching)
The Employee must not, for 6 months after the Termination Date, solicit, induce or encourage any employee or contractor of the Business to cease working for the Business.
Common use case: team leaders, managers, or roles with influence over staffing.
Example 5: Cascading Restraint Clause (Multiple Options In One Clause)
Cascading (or “stepped”) restraints are designed to improve the odds that at least one restraint level will be considered reasonable.
However, stepped restraints aren’t treated the same way in every Australian jurisdiction, and they can fail if they’re not drafted to operate as truly separate, severable options (or if they create uncertainty). Whether they work in practice will depend on the clause wording, the contract as a whole, and the applicable State or Territory law.
Here’s a simplified example structure:
The Employee must not compete with the Business for:
(a) 12 months; or if that is unenforceable,
(b) 6 months; or if that is unenforceable,
(c) 3 months,
within:
(d) Australia; or if that is unenforceable,
(e) the State or Territory where the Employee worked; or if that is unenforceable,
(f) a 10 kilometre radius of the Business Premises.
Important: cascading clauses need careful drafting so they operate as intended under Australian law, including in the relevant State or Territory. If you want this approach, it’s worth getting it properly set up in a tailored Non-Compete Agreement or employment contract.
How To Draft An Enforceable Restraint Clause (Without Accidentally Making It Useless)
If you’re drafting (or updating) restraints for your small business, the goal is to protect your business in a way a court would actually respect.
Here are the practical drafting principles that usually make the difference.
1. Be Clear About What You’re Protecting
A restraint should link back to a legitimate interest. In your contract drafting, that typically means clearly defining things like:
- Confidential Information (what it includes, and that it remains protected after exit)
- Clients / Key Clients (and what “dealings” means)
- Services (so “competing” can be assessed sensibly)
If your contract is vague about what matters, your restraint clause becomes harder to justify.
2. Match The Restraint To The Role (Not Just Your Worst-Case Scenario)
A restraint that might be reasonable for a sales manager with key accounts may be completely unreasonable for a junior admin role.
As you scale, it’s common to use different restraint “tiers” depending on seniority and risk. This can be done through different contract templates or role schedules.
3. Keep The Geography Realistic
Ask yourself: where do we genuinely compete?
If you’re a local service business, a nationwide geographic restraint can look inflated. If your business sells online across Australia, geography may matter less - and you may instead focus on:
- non-solicit of customers
- confidential information
- limits tied to defined competitor categories
4. Use Time Periods You Can Defend
A common mistake is setting a time period based on how long you’d like protection, not how long you need it.
Often, the “right” duration connects to real business cycles, such as:
- how long it takes to replace the person and transition client relationships
- how quickly confidential information becomes outdated
- contract renewal cycles (e.g. quarterly, annual)
5. Avoid Over-Restricting Someone’s Ability To Work
Courts are cautious about restraints that effectively prevent someone from earning a living in their field.
That doesn’t mean you can’t protect your business. It means you should draft the restraint to target the actual risk (like soliciting your clients or using your confidential information), instead of trying to block all competition as a default.
6. Make Sure Your Whole Contract Supports The Restraint
A restraint clause doesn’t live in isolation. If you want your clause to be taken seriously, you also want the surrounding contract terms to be consistent - for example, clear confidentiality, IP ownership, return of property, and termination processes.
This is where tailored contract packages and workplace documentation can really help, especially if you’re managing multiple staff across different roles. Many businesses also add practical workplace rules via a Staff Handbook so expectations are clear during employment, not just at the end.
Common Mistakes We See With Non-Compete Clauses (And What To Do Instead)
Restraint clauses are one of the most “copied and pasted” parts of employment and contractor contracts - and that’s often where problems begin.
Mistake 1: Using A Generic Template That Doesn’t Fit Your Business
A clause that worked for a national company might be inappropriate (and unenforceable) for a local business, and vice versa.
What to do instead: tailor your restraint to your actual customer base, your sales cycle, and the individual’s role. If you’re unsure what’s “reasonable”, it’s worth getting restraint of trade advice early, before there’s a dispute.
Mistake 2: Making The Clause So Broad That It Risks Being Struck Out
Overly broad restraints (long duration, huge geographic area, wide definition of “competing”) can backfire.
What to do instead: consider whether a non-solicit clause plus confidentiality gives you most of the protection you want, with less enforceability risk.
Mistake 3: Forgetting Contractors (Not Just Employees)
Contractors can be just as close to your customers and systems as employees - sometimes more so. But contractor arrangements need careful handling, because the relationship is different.
What to do instead: ensure your contractor terms include appropriate confidentiality and restraint provisions, aligned with the commercial reality of the engagement. This is often addressed in a tailored Contractors Agreement.
Even a well-drafted non-compete doesn’t stop someone from using what they learned unless your contract clearly covers confidential information.
What to do instead: build layered protection - a strong confidentiality clause, return-of-property obligations, and (where appropriate) targeted non-solicit and non-compete restraints. For sensitive external discussions, businesses often also use a Non-Disclosure Agreement.
Key Takeaways
- A non-compete clause can be enforceable in Australia, but only if it’s reasonable and protects a legitimate business interest (like client relationships, confidential information, or goodwill).
- If you’re targeting the real risk (losing clients), a non-solicitation clause is often more enforceable than a broad non-compete clause.
- The enforceability of a restraint usually turns on duration, geographic area, and scope - and whether those limits match the role and your market.
- Cascading restraint clauses can improve your chances of enforceability in some cases, but they need careful drafting and may not be treated the same way in every State or Territory.
- Your restraint clause should be supported by the rest of your contract terms (confidentiality, IP, termination, return of company property) to be effective in practice.
If you’d like help drafting or updating a non-compete clause for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
