Short answer: Draft laws released by Treasury would stop non-competes working for most employees, ban co-worker non-solicitation clauses and make no-poach agreements between businesses cartel conduct. For a buyer, that changes how you protect the team and clients you are paying for. It is still a draft, so get advice on the specific deal before you commit.
When you buy a business, a large part of what you are paying for usually walks in the door every morning. The team. The people who hold the client relationships, who know how things really get done, and who the customers ring when something goes wrong. And the rules that protect that part of your purchase are about to change.
Treasury released the exposure draft of the Banning Unfair Non-Competes Bill on 7 September, and consultation closed on 2 October. It is still a draft, and some of the detail may change before it passes. But there are big changes on the horizon in the area of restraints, the Government has said they are expected to start in 2027, and they will matter for any business you are looking at buying.
What looks like it is changing
A restraint is a clause that limits what someone can do after they leave, such as working for a competitor or approaching the business’s clients. As the draft stands:
- Most employee non-competes would stop working. A non-compete (the clause that stops a former employee competing) would be banned for anyone earning under the high income threshold, which is $190,100 for the year to 30 June 2027, and for every casual.
- Co-worker clauses would go for everyone. A clause stopping a departing employee from recruiting their former colleagues would be banned at any salary.
- Existing contracts keep their clauses, but only for a while. Contracts signed before the law starts keep their non-competes until they are changed, and a change may include something as routine as a pay rise.
- No-poach agreements between businesses become cartel conduct. An agreement between two businesses not to hire each other’s staff would fall under competition law, with criminal penalties.
Why this matters more when you are buying
Each of those points goes to a question every buyer needs answered: if a key person leaves after I buy, what stops them taking the clients, the suppliers or the rest of the team with them?
Up to now, the answer has usually sat in a few places at once. The restraints in the team’s employment contracts, the restraints the seller gives in the sale agreement, and how the deal itself is structured. Under the draft, every one of those is affected in some way. Some of the effects depend on how the purchase is structured. Some depend on what you do with the team’s contracts after completion. And some of the detail is still unclear in the draft itself.
Which means that, right now, there is more uncertainty than there has been in a long time about the protections you have over the people in a business you buy. And that makes getting the right advice before you commit more important than it has been in years.
We have been through the draft in detail, we made a submission to Treasury on it, and we are working through what it means on the deals we act on. We will keep updating our buyer clients as the law moves.
When the team is the value, build the deal around them
A great example of how much this can matter is a sale we worked on, which I wrote about in Buy, Grow, Exit. The business had more than 200 contractors, and they were the value. Without them the buyer was buying very little.
So the buyer structured the final payment around them: the more contractors who agreed to move across, the more the seller was paid. And the sellers worked incredibly hard right up to completion to bring every one of them across. In the end the buyer got the team it was paying for, on its terms, and the sellers got the price they wanted. A great result for both sides, and a good reminder that when the people are the value, the deal needs to be built around them.
Under the draft, that kind of thinking will matter even more, because the employment restraints a buyer used to lean on may not be there in the same way.
What to be across before you buy
- Who holds the value in the business, and what their contracts say about leaving.
- Whether those contracts were signed before or after the law starts, and whether they have been changed since.
- How the purchase is structured, because that may affect what protection carries across to you.
- What you plan to do with the team’s contracts after completion, because some changes may affect the protection you inherit.
- What the seller can and cannot promise you about the team, which may also be affected by the draft.
The right answer on each of these depends on the business, the people and the deal. It is not something to work out from a template, and it is far easier to get right before you sign heads of agreement than after.
Common questions
How does the non-compete ban affect buying a business?
Much of what a buyer pays for is the team and the clients they look after. The draft changes which employee restraints will work, how long existing ones last, and some of what a seller can promise about the team. The effect on a given deal depends on its structure and the people in the business.
Will the target’s existing non-competes still protect me after I buy?
As drafted, contracts signed before the law starts keep their non-competes until they are changed, and a pay rise may count as a change. Whether that protection carries across to you, and for how long, depends on how the purchase is structured and what happens to the contracts after completion.
What should I check in due diligence on employment contracts?
Who holds the value in the business, what their contracts say about leaving, when those contracts were signed and whether they have been changed, and how each person is engaged. The answers shape how you structure the deal and what you ask the seller for.
Can I stop the seller hiring the team after I buy?
The draft changes the rules on agreements between businesses not to hire each other’s staff, and the detail on how that applies to a sale is still being worked through. This is a point to get advice on for your specific deal before you sign heads of agreement.
How can a buyer protect against key staff leaving?
Restraints are only part of it. Buyers also build protection into the deal itself, for example by tying part of the price to key people moving across, along with warranties and plans to keep the team engaged. What fits depends on the business and the people in it.
What to do about it
The cheapest time to get this right is before you commit, while the deal can still be shaped around the team.
- If you are buying a business, or looking: Book a free 15-minute call and we will talk through what the draft law means for the business you are looking at.
This is draft legislation and may still change. We will keep you updated as it moves.
