From 2027, non-compete clauses will no longer be enforceable against most employees earning under the high income threshold. I believe it will be sold, understandably, as a win for wages and job mobility. For business owners preparing to sell, and for the accountants and solicitors advising them, it is something else entirely. It is a fundamental shift in what actually gets sold when a business changes hands.
The reform does carry an exception worth noting carefully. Restraints tied directly to the sale of a business remain enforceable. If a seller signs a restraint of trade as part of a sale agreement, undertaking not to open a competing business down the road, that restraint still stands. What disappears is the everyday, garden-variety non-compete clause sitting inside an employment contract, of the kind that has quietly stopped a senior account manager or a lead technician from walking out the door and taking the client relationships with them.
If the legal mechanism that once tied a valuable employee’s relationships to the business is being dismantled, what happens to the argument that those relationships were ever the business’s asset to sell?
For years, valuers have drawn a line between enterprise goodwill, which belongs to the business regardless of who happens to run it, and personal goodwill, which is tied to a specific individual and does not survive a change of ownership. Where a business relies heavily on one or two key relationship holders, and where nothing legally prevents those individuals leaving and taking clients with them, more of that goodwill sits on the personal side of the line than a seller might like to admit.
The non-compete ban does not create this risk. It simply removes one of the few tools that used to disguise it.
I expect deal structures to change as a direct result of this reform, and buyers are already moving in that direction. Earn-outs will become more common, tying a meaningful part of the purchase price to performance after settlement rather than paying it all on the day of completion. Retention payments will increasingly be linked to whether specific named clients actually stay, rather than to revenue targets that can be met through other means. Vendor handover periods will lengthen, because a buyer wants the relationship transferred in practice, not merely on paper. And in first round due diligence, expect buyers to ask for the employment contracts of the top five people who hold the client relationships, well before they ask about anything else.
This is not said to discourage a sale, nor to suggest the sky is falling. It is said because a seller who understands this shift before going to market negotiates from a position of strength, and a seller who discovers it during due diligence negotiates from behind.
The goodwill has not moved.
The proof of who owns it has.
For accountants and solicitors advising business owners on an eventual sale, this is worth raising well before a term sheet reaches the table. The earlier a business identifies which client relationships genuinely sit with the enterprise, rather than with one or two key individuals, the stronger its position at the negotiating table, and the smaller the earn-out a buyer will feel entitled to demand.
Kevin Lovewell is a Registered Business Valuer with over thirty-five years of experience in business valuation and brokerage. This article is general commentary and does not constitute legal, tax, or financial advice specific to your circumstances. Views on the practical effect of the 2027 reform are the author’s own professional opinion.
If you are preparing to sell a relationship-driven business, understand where your goodwill genuinely sits before a buyer tells you. Contact Kevin Lovewell directly on 1300 551 757.
