A restraint of trade is often a provision within a contract, such as an employment contract, that prevents a person from working for a competitor or from otherwise providing their services and skill for the benefit of a competitor.
The objective of a restraint of trade clause is to prevent that employee from performing a role that could detrimentally affect the profitability, market share and reputation of the original business.
Restraint of trade clauses are commonly held by the Courts to be unenforceable on the basis that they are contrary to the interests of a free, competitive market, however, they are determined on a case by case basis. Some of the factors the Court might consider when determining whether a restraint of trade clause is valid includes:
The relevant industry and whether a restraint is common practice;
- The terms of the restraint such as the duration of the restraint and the exclusion areas;
- The place where the business is based. For example if a business is based in Sydney's CBD, a restraint would likely prevent the employee from working for a very large number of competitors and this could severely limit prospects of future employment;
- The effect on the employee should the restraint be enforced, for example financial hardship.
- The effect on the business should the restraint be overturned, for example does the employee have skills in a niche market which, if utilised by a competitor could have a significant effect on profitability?
If you have a restraint of trade provision in your contract that you wish to seek advice on, or if you are an employer hoping to impose a restraint of trade provision, we recommend that you contact our office and arrange an appointment to see one of Competition & Trade Solicitors in our Sydney office. For a complete listing of our offices, please see our "Locations" tab.
This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.
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