A restraint of trade clause is generally inserted into an employment agreement by the employer in an attempt to protect their business interests and goodwill.

Before you sign your employment agreement, make sure that you have understood all clauses in the agreement, especially those regarding a restraint of trade. A restraint of trade clause in your agreement may have unfavourable consequences on your potential future employment or even on your ability to start your own business. And if you have additional questions, don’t hesitate to get into contact with one of our employment lawyers.

restraint of trade

Overview:

Types of restraint clauses in employment contracts:


Your employment agreement may have a few common restriction of trade clauses in it. These include:

  • Restraining you from working in an organisation that is a competitor of your former employer for a specific period of time and in a particular geographic area;
  • Restraining you as an ex-employee from disclosing confidential information to the competitor employer;
  • Restricting you from poaching or enticing any other employees to work in competition with your employer; and
  • Restricting you from approaching or assisting your old clients for a period of time and in a particular geographic area after your employment relationship has ended.

Are restraint of trade clauses enforceable in Australia?

Restraint of trade clauses are enforceable on the employees up to a certain extent. They must protect the employer’s legitimate business interest (i.e. a trade secret) or to protect the reputation of the business.

Minimising competition is generally not enough to create a legitimate interest, so the employer needs to ensure that the enforcement of the restraint of trade clauses on the employee does not go further beyond the legitimate business interest of the employer.

The Court might not enforce the restraint of trade clauses on the employee if the Court finds that the employer has gone beyond its legitimate business interest.

The Court considers a number of factors before enforcing the restraint of trade clauses on the employee, including:

  • The employer’s interests and their protection capabilities, which include:
    • Geographic locations of the employer and their business
    • Goodwill in the market and;
    • The geographic locations of their clients.
  • Nature of work the employee is restrained from, which includes:
    • The position, job roles and duties of the employee and;
    • The level of interactions with the clients.
  • Scope and period of the restraint of trade clauses on the employee, which also includes the geographic area the employer is proposing to be covered by the clauses.
  • Benefits to the employees from entering into employment agreements having restraint of trade clauses in it; and
  • The added advantage of negotiating powers the employees get by entering into such agreements.

At times, employment contracts may contain a series of restraint of trade clauses, which may overlap with each other. In these cases, any clause that is found unreasonable and unenforceable can be severed and the employer can enforce the remaining clauses on the employees.

If you are an employee or an employer and would like to know more about restraint of trade clauses or you feel you have an unfair restraint of trade clause in your employment contract, please seek legal advice from our experienced commercial lawyers. They can answer questions about employment contracts and awards, workplace rights and adverse action and more.

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