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A restraint of trade clause is a provision that is placed into a contract by prospective employers who want to safeguard their business secrets, confidential information and other special knowledge, so that it does not fall into the hands of their competition.

The restraint of trade clause will usually prevent an employee from working in a particular capacity, in a particular geographic area and for a particular time, after the termination of employment. This is intended to ensure that any of the former employer’s business secrets, confidential information and special knowledge, which the former employee may have acquired over the term of his employment, is not made available to a competing business.

These kind of clauses are not unlawful in and of themselves and it is not unreasonable for a business which has built up a base of intellectual property to want to preserve it for its own use. However, it is not unusual for restraint of trade clauses to sometimes be so wide that they become unenforceable.

The governing law is contained in legislation and the cases that are determined in Courts.

A Court will consider the interests of all parties involved when weighing the legitimacy of the restraint of trade clause. The Court will also consider the width of the restraint (area and activities) as well as the duration. 

The law that relates to these considerations is constantly growing as cases are brought for determination before Courts. 

Navado has observed a recent trend whereby Courts have become more inclined to enforce restraint of trade clauses. This is not to say that such clauses, no matter how unreasonable, will be more likely to be seen as enforceable; it merely suggests that the Courts appear to be focusing on the need for business to protect their legitimate interests against former employees and their competitors. It is up to the litigant who wishes to challenge the scope of the restraint of trade clause to convince the Court that it is unreasonable and against public policy. 

Courts can “read down” a restraint of trade clause where an employer provides alternatives in the restraint provision. This allows a Court to strike down an unreasonable part of the restraint instead of striking out the entire provision. In the event that a former employee acts in breach of the restraint of trade clause, the former employer will have the right to seek injunctive relief, but this relief must be sought as soon as practicable.

If you are an employer who is drafting an employment contract for a future employee, seeking advice from a restraint of trade lawyer can be important if you wish to minimize the hassle of possible future disputes in this area. Likewise, if you are an employee who has left work and is considering employment elsewhere, where that employment may fall within the parameters of the existing restraint of trade clause, an employment lawyer that works in the restraint of trade area can offer you the assistance you need for smooth transition into your new employment.

Please contact our firm by telephone on (02) 9233 4048 or send an email to info@navado.com.au and arrange an appointment if you wish to speak to one of our solicitors. 

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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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