Restraint of Trade Clauses in Employment Contracts

Restraint of trade clauses are commonly included in employment contracts to restrict an employee’s activities after their employment ends. These clauses may seek to limit where a former employee can work, who they can work for, or which clients they may deal with.

Disputes arise when an employer seeks to enforce a restraint, or when a former employee wishes to challenge the validity or scope of a restraint that restricts their ability to earn a living.

Raine Litigation Lawyers can assist in litigation involving restraint of trade clauses in employment contracts.

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Employment restraints may take a variety of forms, including:

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• non-competition clauses;

• non-solicitation of clients or customers;

• non-dealing provisions;

• restrictions on working within a geographic area; and

• cascading or “step-down” restraint clauses.

These clauses often operate for a defined period following the termination of employment, but their enforceability depends on the particular circumstances.

Under Australian law, restraint of trade clauses are only enforceable where the employer can show that the restraint goes no further than is reasonable and necessary to protect a legitimate business interest.  In such cases the court will closely examine:

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• the nature of the employee’s role and seniority;

• the employer’s legitimate interests, such as confidential information or client relationships;

• the duration and geographic scope of the restraint;

• the activities restrained; and

• whether the restraint is oppressive or unreasonable in its operation.

The fact that a restraint appears in a signed employment contract does not, of itself, make it enforceable.  Many restraint clauses go too far, seek to impose unreasonable and/or unnecessary restrictions on former employees, and will not survive a challenge in court.

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Restraint disputes frequently arise at short notice, particularly where a former employee has joined a competitor or commenced a competing business.  Employers may seek urgent interlocutory relief, including injunctions, to restrain alleged breaches pending a final determination. Former employees may resist such applications or seek declarations as to the enforceability of the restraint.

These matters turn on a careful assessment of the evidence, including the employee’s duties, access to information, and the practical effect of the restraint.

Raine Litigation Lawyers can assist either employers and employees in restraint of trade disputes, including:

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• advising on the enforceability of restraint clauses;

• responding to or initiating urgent injunction applications;

• preparing and testing evidence relating to legitimate business interests;

• advising on litigation risk and strategy; and

• conducting proceedings through to hearing where required.

We provide clear advice about prospects and practical outcomes, including the risks and costs associated with urgent court applications.  Early advice is critical in restraint of trade matters.  Delay can significantly affect available remedies and litigation strategy.  If you are facing enforcement of a restraint, or considering taking steps to enforce one, contact Raine Litigation Lawyers for the essential legal advice before acting.