Business bosses are furious about a "heavy handed" measure designed to help workers take better paid jobs or start their own companies.
The workplace change contained in the federal budget means workers earning less than $175,000 cannot be "handcuffed" to their jobs.
The change is subject to legislation and expected to take force in two years.
Businesses will be unable to impose non-compete clauses, which stop or restrict people from moving to a competing employer, on their workers.
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the change was unnecessary.
"It's a heavy-handed measure," he told AAP.
"This is something that really will affect particularly a lot of smaller businesses who invest in time to train their staff to pass on their intellectual property.
"They then face the risk that if those staff move on, they can go to a competitor, and very quickly you're at a competitive disadvantage, in many cases, if you're just a small business."
Research out of the US, where the Federal Trade Commission has moved to ban non-competes entirely, suggests it would improve business start-up rates and would affect several industries including finance, health and beauty.
Leanne Boase is a nurse practitioner in Melbourne’s outer north as well as chief executive of the Australian College of Nurse Practitioners.
When she left a GP clinic she co-owned, her former practice partner tried to prevent her working at rival clinics within 25km for 10 years.
"I wasn't free to actually move into a different practice location, and my patients were not free to have the choice to continue to see me as a provider, and that's what worried me," she told AAP.
"Invisible handcuffs are there, and that's really unfair."
More than three million Australians are covered by such clauses, including childcare workers, hair stylists, and construction employees.
The Labor government is also considering expanding the ban on non-competes to people earning more than $175,000 - the threshold defined as high income under Fair Work legislation.
The changes could add $5 billion, or 0.2 per cent of GDP, to the economy each year, according to Productivity Commission modelling.
Non-compete clauses have been found to drive down wages by an average of $2700 for workers, according to analysis by research institute e61.
The government will also clamp down on loopholes in competition law that allow businesses using "no-poach" agreements to stop workers from being hired by competitors.
The crackdown will also extend to employers making anti-competitive deals that cap workers’ pay and conditions, without their knowledge or consent.
