Restraint of trade enforcement

The general rule is that a restraint of trade clause in an employment contract is prima facie void, unless the employer has a legitimate interest it is protecting, and the scope of the restraint is not wider than is reasonably necessary to protect that interest. There are a lot of myths surrounding the enforceability of restraint of trade clauses in employment contracts.  These myths range from an employer cannot stop an employee going to a direct competitor to its usual to be able to enforce a three (3) month restraint of trade period on an employee.  Perhaps the most misunderstood concept is the difference between a restraint of trade clause in an employment contract and a clause a commercial contract prohibiting the seller from competing post sale.

Unfortunately, all these myths are just that, myths.  The reality is that it whether a restraint of trade can be enforced will depend on the nature of the contract, the role being performed by the employee, the extent to which the employee has access to confidential information and the admissible evidence that is able to be adduced to support the restraint in question.

What legitimate interests are capable of being protected?

Relevant case law shows that the Courts have recognised the following “legitimate interests” of employers as being able to restrain various aspects of post-employment behaviour of employees:

• trade secrets;
• trade connections;
• trade connections/customer connections;
• non-solicitation of staff:
  • promoting stability of an employer’s workforce;
• Interest in obtaining the full benefit of its bargain:
  • protecting the value of its goodwill; and
  • interest in the expansion of its business.

Is the restraint of trade clause too broad?

The second threshold to be overcome by employers wanting to enforce their rights is whether the restraint of trade clause is necessary where contractual obligations of confidence may have the same effect.  Whether a restraint of trade clause is reasonable is to be assessed at the date of entering the contract.

Applicable Industries

Most businesses, particularly those that are involved in the creation and management of intellectual property have various legitimate interests that are capable of being protected by a carefully drafted restraint of trade clauses.

Disclaimer
This page contains general commentary only about restraint of trade enforcement.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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Considering getting a lawyer to advise your business?

For a confidential, no obligation initial telephone call to find out how we can help your business gain an uncommon advantage in restraint of trade enforcement please phone our team on either 1300 386 529 or 07 3221 0013.

Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au

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