Restraint of trade clause held to be invalid, unreasonable and unenforceable!

An employer has filed an application to stop a former employee from working for one of its competitors.

The employee had a restraint of trade clause in their individual employment agreement which prevented him from working for a competitor within a 20 kilometres radius, and for a period of 12 months after the termination of his employment, without the consent of his employer.

The Employment Relations Authority held that the restraint of trade clause in the employee’s employment agreement was invalid, unreasonable, and unenforceable.

The ERA noted that restrictive covenants are against public policy, and are on the face of it, unenforceable. Restrictive covenants may be enforceable if the employer has a legitimate proprietary interest to protect, and the restraint is no wider than is reasonably necessary.

The ERA noted that a restraint which seeks to limit or reduce competition is unenforceable, including restraints which try to prevent an employee from using their skills, experience, general knowledge and knowhow after their employment has ended.

The ERA found that the employee had no access to confidential information or trade secrets during his employment which needed protecting as the employee had a relatively simple job. The ERA also noted that the employee was paid less than other employees who had similar restrictive clauses in their employment agreements.

Employers need to ensure they are protecting a genuine business interest in relation to this particular employee, their wording is no wider than necessary and that good consideration is provided in return for inclusion of the clauses in an agreement.