Lawthentic Loop

Keep up-to-date with all Lawthentic things

Lawthentic Loop

Keep up-to-date with all Lawthentic things

By including an enforceable restraint of trade clause in employment contracts, you can prevent employees from engaging in an array of activities following their departure from your business.

Post-employment restraints

By including an enforceable restraint of trade clause in employment contracts, you can prevent employees from engaging in an array of activities following their departure from your business.

As an employer, how do you safeguard your business from former employees:

  • Starting up a rival business nearby?
  • Soliciting your clients or customers?
  • Poaching your employees?
  • Working for a competitor?
  • Using your confidential information or trade secrets?

By including an enforceable restraint of trade clause in employment contracts, you can prevent employees from engaging in an array of activities following their departure from your business.

Traditionally, post-employment restraint clauses were seen to go against public policy and were inherently void. But over the years the law has evolved, and depending on the circumstances, such clauses can be enforceable.

For a post-employment restraint clause to be enforceable, it must be reasonable and must be in the interests of:

  • The parties (e.g: the restraint needs to protect the employer’s legitimate business interest such as goodwill, confidential information, trade secrets, commercial interests or a secure workforce); and
  • The public (e.g: the restraint must not seek to just stifle competition).

To enforce a post-employment restraint clause, the onus is on you as an employer to convince the court that, at the time of the agreement:

  • A legitimate business interest of the employer existed, which needed protecting;
  • The restraint was not more than reasonably necessary to protect the interest; and
  • There has been a breach of the restraint (this requires looking at the terms of the restraint and considering the former employee’s actions).

In determining whether a restraint is reasonable, the court will consider the specific facts at hand, together with factors such as:

  • The length of the restraint;
  • The geographical area of the restraint:
  • The activities the employee is restrained from doing;
  • Whether the employee had the opportunity to seek legal advice prior to signing the employment contract; and
  • Whether the employee was paid an appropriate remuneration in return for the restraint.

Even if a restraint of trade clause is considered unreasonable, the Restraint of Trade Act 1976 (NSW) permits the court to ‘read down’ any unreasonableness in the terms of the restraint clause and order a restraint which it considers suitable.

Post-employment restraints can be tricky and their enforcement can be technical. For more detailed information on a restraint of trade clause or if you’d like us to look at your employment contract, get in touch with the Lawthentic team.

Get in touch

Anything you’d like to tell us?*

Archive

Archive