In today’s competitive business environment, restraint of trade clauses have become a staple inclusion in many employment contracts. These clauses aim to protect an employer’s legitimate business interests by restricting an employee’s ability to engage in certain activities after leaving the company. They can restrict where a former employee works, who they can work for, or whether they can approach clients or colleagues for a set period of time.
When used properly, restraint of trade clauses can play an important role in protecting confidential information, client relationships, and the goodwill of a business. When drafted poorly or applied incorrectly, they can be unenforceable and expose employers to unnecessary risk.
Furthermore, due to the inherent power imbalance between employers and employees, the enforceability of these clauses can be a complex legal issue, often sparking debates and, sometimes, court battles.
At Argon Law, we provide clear, practical advice on restraint of trade issues for employers, senior executives, and employees across the Sunshine Coast and beyond.
A restraint of trade is a contractual clause that limits a person’s ability to work or conduct business after their employment ends. They often appear in employment contracts but also feature in partnership agreements and even business sale contracts.
A restraint of trade clause is designed to limit an employee’s actions after their employment ends, such as preventing them from working for competitors (a non-competition clause), soliciting clients (a non-solicitation clause), or poaching former colleagues.
While these clauses serve an important purpose for employers, they are prima facie void under common law, unless the restraint is reasonably necessary to protect a legitimate business interest, as otherwise they are generally viewed as against public policy.
Some restraints can still be enforced if an employer proves the restraint is reasonable.
This balance between the protection of business interests and the right of employees to earn a living forms the crux of any legal dispute over the enforceability of these clauses.
Restraint of trade clauses fall into several general categories, each covering a certain area of activity.
Non-compete clauses prevent an employee from working for a competitor within a defined geographical area and for a set period or setting up their own competing business. An example of this sort of clause might outline how an employee is restricted from joining a competing or rival business for 6 months.
Non-solicitation causes prohibit an employee from poaching clients or employees from their former employer. The clause may outline that the former employee is restricted from even contacting a former client for a period of 12 months.
Non-dealing clauses stop former employees from doing business with clients they had contact with during their employment. This sort of clause might specify that even in the event the former employee is approached by the client, they are restricted from engaging with them.
Among these, non-compete clauses are often seen as the most restrictive and least enforceable, especially when they broadly limit an employee’s ability to work in their field.
The least enforceable is an attempt to prevent an ex-employee from practicing in his or her field of work or expertise, with no reference to direct competitors.
The key legal issue that often arises with restraint of trade clauses, and post-employment restrictions in general, is whether they are reasonable. This is where many disputes occur, as the courts are tasked with determining if the scope of the restraint is justified by the employer’s need to protect legitimate business interests.
Whether a restraint of trade is enforceable depends on the specific circumstances. Courts will closely examine factors such as:
Even if a restraint is written into an employment contract, it may not be upheld if it is too broad or unfair.
For employers, restraint of trade clauses can be an important tool to protect your business, but they must be carefully drafted.
Employers need to carefully draft restraint of trade clauses to avoid the cost of enforcement and litigation costs and ensure that the clause provides adequate protection. The restraint should be no broader than necessary to protect legitimate business interests, such as confidential information, client relationships, or intellectual property.
An employment lawyer can assist employers to conduct a risk assessment prior to finalising restraint of trade clauses for employees which helps to ensure reasonability and avoid disputes in the future.
We assist employers with:
Our focus is on creating commercially practical restraints that are more likely to stand up if challenged.
Employees need to be aware of the potential impact of a restraint of trade clause on their future employment opportunities. Whether the restraint clause is enforceable will depend on its reasonableness. Key factors include the duration, geographic area, and scope of the restraint.
For instance, a clause that restricts an employee from working within a 100 km radius for 3 months may be enforceable if the employer can show that it is necessary to protect client relationships or confidential information.
If you are changing jobs or starting a competing business, restraint of trade clauses can have a significant impact on your future, and so it’s essential to obtain legal advice. Our lawyers can help you navigate these complexities and determine whether the clause is enforceable or if it has the potential to limit your future career moves.
We regularly advise employees and executives on:
Early advice can help you avoid disputes and move forward with confidence.
A final observation, the Federal Government announced a new direction for restraints of trade against employees, in the most recent Federal budget. The focus is more on employee and labour mobility, wage growth and national productivity, rather than the interests of employers.
Though the new legislation is not yet in place, courts will be mindful of the direction we are moving as Australians and will factor this is in to any decision regarding the enforceability of restraints, particularly when the annual salary is not at the top end.
Key measures to be implemented from 2027 is banning non-compete clauses for employees earning under the high-income threshold (approx. $175,000 – $200,000 p.a.) as well as restrictions on employees around wage caps and preventing hiring from competitors.
Under Australian employment law, (except for NSW), courts can sever (or “blue pencil”) parts of an overly broad restraint clause, leaving the reasonable parts enforceable. To avoid this uncertainty, it’s critical to draft restraint clauses with cascading provisions, which offer varying degrees of restraint in terms of time, geography, and scope. This ensures that if a broader provision is deemed unenforceable, a narrower, more reasonable one might still stand.
At Argon Law, we can assist in drafting clear, enforceable restraint of trade clauses that balance business needs with legal compliance.
Restraint of trade clauses are a crucial aspect of employment contracts, but their enforceability often depends on careful drafting and a clear understanding of the law. Whether you’re an employer seeking to protect your business or an employee concerned about post-employment restrictions, our team is here to help.
Restraint of trade issues sit at the intersection of employment law and commercial risk. Our team understands both the legal framework and the real-world pressures faced by businesses and individuals.
If you need advice on restraint of trade clauses, employment contracts, or post-employment restrictions, Argon Law is here to help with clear, commercially focused guidance.
Contact us today for tailored advice on your employment contract and ensure your rights and interests are protected or learn more from our legal team on Employment Law.
A: Yes, restraint of trade clauses are legal, but importantly they are not automatically enforceable. This means that a restraint will only be upheld if it is both reasonable and necessary to protect a legitimate business interest. Legitimate business interest includes areas like client relationships, goodwill or confidential information.
A: There is no fixed time limit, and the length of a restraint must be reasonable in the context of the role and the business. 3-12 months is a commonly seen duration but this depends on the seniority of the role. More senior employees, particularly those with access to more sensitive information, may be subject to longer restraint periods than junior employees.
A: An employer can attempt to restrict you from working for a competitor, but whether that restriction is enforceable depends on the scope of the clause. If the restraint is too broad, it may not be upheld by a court.
A: If a restraint is enforceable and breached, an employer may seek court orders to stop the conduct, as well as damages or other remedies. Early legal advice is important if a dispute arises.
A: Absolutely. Restraint of trade clauses can often be negotiated before signing an employment contract, particularly for senior roles. Employees may also be able to negotiate terms on exit, depending on the circumstances.
A: Not always. While restraints can still apply after redundancy, courts may take a stricter view if the employee did not choose to leave and the restraint significantly limits their ability to earn a living.
A: If you are unsure about your obligations, it is best to seek advice before resigning, accepting a new role, or starting a competing business. Clear advice early can help you avoid costly disputes.
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