Restraint of trade clauses in employment agreements were in the past generally regarded as unenforceable because they were seen as being contrary to public policy. However, courts in recent years have been willing to enforce these clauses if they are reasonable and protect the employer’s legitimate assets and interests.

Restraint of trade clauses will be enforceable if:

  •          the restraint of trade clause is reasonably necessary to protect the employers legitimate commercial or           proprietary interests;
  •          the restraint of trade clause protects the employer from more than competition itself; and
  •          the restraint of trade clause is reasonable.

What does this mean?

When determining whether a restraint of trade clause is enforceable, the court will firstly consider whether the employer has legitimate commercial or proprietary interests. These interests may be trade secrets, customer lists, business relationships or budget forecasts. The restraint of trade will only be enforced as necessary to protect these interests.

When assessing whether the restraint of trade clause is reasonable the court considers factors including the employee’s role and the employer’s business, the geographical scope of the restraint, and the nature and duration of the restraint.

These factors are assessed in light of the circumstances of the employment agreement between the parties. For example, if compensation or additional remuneration is given for the restraint of trade clause or the employee agrees to the restraint of trade clause being present in the employment agreement in return for remuneration, the clause is more likely to be enforceable (it still has to protect only legitimate business interests and be reasonable).

Restraint of trade clauses can be difficult to enforce 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 completely, then it may not be enforced.

If the restraint of trade clause is unreasonable, the Court can choose to delete the clause from the employment agreement or modify the clause, so that it is reasonable.

The Court will enforce it to the least amount necessary in order to protect the employer’s legitimate business interests. This could mean for example reducing the geographical area or duration of the restraint.

How can employers enforce a restraint of trade clause?

If an employment agreement contains a reasonable restraint of trade clause, then an employer can apply to the Court for an injunction to stop an employee breaching the clause or the Court may award compensation or set penalties that are payable by the employee or in some circumstances, the employee’s new employer.

If you are concerned about a possible breach of a restraint of trade clause we recommend that you seek advice from a professional experienced in the area to establish whether the restraint is reasonable and whether the restraint can be enforced. 

If you are an employer who is concerned about a legitimate commercial or proprietary interest, you should take steps to ensure your employment agreements are drafted correctly to protect your business assets and interests. 

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced employment law team who can answer your questions and put you on the right track.

Gianna Menzies and Matthew Binnie