When are restraint of trade clauses enforceable?

The employer must show that the restraint is reasonably necessary to protect a legitimate commercial or proprietary interest. Such interests could include trade secrets, customer lists, a continuing business relationship or budget forecasts. The restraint of trade will only be enforced to the extent required to protect these interests.

The restraint of trade clause must also protect an employer from more than competition itself. This is because the law protects an employee’s right to earn a living and their right to pursue a career in their chosen field. If a restraint of trade prevents this, then it is unlikely to be enforceable.

An employer must show that the restraint of trade is reasonable.

If compensation (like additional remuneration) is given for a restraint of trade or the employee agrees to the restraint of trade, then the clause is more likely to be enforceable.

What factors will make a restraint of trade clause reasonable?

1. An employee’s role;
2. The employer’s business;
3. The geographical scope of the restraint;
4. The nature of the restraint, and
5. The duration of the restraint.

The Court can modify a restraint clause to cover what is reasonable in the circumstances. The Court can only reduce the extent of the clause (not increase it), so you should include everything necessary in the clause that you draft. It pays to get advice from a professional