If you are employed in professional services, you will most likely have a post-employment restraint clause in your employment contract. So, what is it and what does it mean when the employment relationship ends.
A restraint of trade is a contractual clause that seeks to prevent employees from working for competitors, starting their own competitor businesses or taking customers or co-workers.
There are five main types of clauses in contracts:
Anti-competition to prevent you from creating or joining a competitor;
Preventing the use of or disclosure of confidential information obtained in the course of employment e.g. pricing, contact lists;
Non-solicitation of suppliers;
Non-solicitation of customers or clients; and
Non-poaching of employees or contractors to leave the business.
A restraint of trade will only be held to be enforceable by a Court if it is reasonable to protect the legitimate interests of a business without being contrary to the public interest. There is a thin line between protecting a business’ interests and being anti-competition. Restraints cannot prevent a person from earning a living; if they are too restrictive, they will not be upheld.
When determining whether a restraint is reasonable, Courts will look at:
The restraint period; for example, if you have clients on 12 month retainers, 12 months will be usually reasonable;
The restraint area; for example, if you only operate in Victoria, it is unreasonable for a restraint to operate throughout all of Australia; and
The competitive activity covered.
A restraint will not be enforced if it:
Protects your business from competition from employees who are simply good at their job or have a good reputation; or
Prevents employees from doing business with friends or family.
There are many factors to consider and more often than not, the enforceability of a restraint will depend on the individual circumstances of a case.
If you’ve been asked to sign a new employment contract containing a restraint clause or you have recently left your employment and worried about what this means for you, call one of the workplace relations lawyers at Nevett Ford for advice on (03) 9614 7111.