Restraint of trades – what you need to know

It is common for employers to include non-competition provisions within individual employment agreements. However, restraint of trade clauses are generally unenforceable, unless an employer can show that a restraint is reasonably necessary to protect a proprietary interest (e.g. a trade secret, customer lists or budget forecasts).

A restraint of trade cannot protect an employer from mere competition. 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.

In order to enforce a restraint, employers must show that the restraint is reasonable. In determining whether a restraint is reasonable, a Court would look at the employee’s role, the employer’s business, and the geographical scope, duration, and nature of the restraint. Sometimes employees will be compensated for entering into a restraint of trade clause by way of additional payments of remuneration. Compensation and acceptance of a restraint as being reasonable are also relevant factors which may be taken into account by a Court.

A Court will only enforce a restraint to the extent required to protect the employer’s proprietary interest. Employers can seek an injunction to prevent an employee from breaching a restraint of trade clause as well as compensation and/or penalties from the employee or their new employer.

If you think you, or an employee, may be in breach of a non-competition provision we recommend that you seek legal advice to establish whether the restraint is reasonable and whether the restraint can be enforced. Restraint clauses can potentially have a huge impact on an employee’s ability to gain employment after termination and can sometimes render them unemployable if prospective employers are intimidated by cumbersome restraints.