Restraint of Trade
Employers often include restraint of trade clauses in employment
contracts. The restraint clauses more often than
not involve you agreeing to refrain from performing work for your
current employer's clients and/or competitors for a certain period
of time after you leave their employ. The restraint of trade
can also apply to a geographical area.
What is a restraint of trade?
The most common restraint of trade is where your employer seeks
to impose restrictions or limitations on your future employment
after you leave employment. Sometimes employers also seek to
impose restrictions on engaging in other employment whilst you are
employed by them.
A restraint of trade can take many forms. The most common
restraint of trade provisions are:
- you must not work for a competitor of the employer for X amount
of time in Melbourne after the employment comes to an end
- you must not use or disclose confidential information after
leaving employment
- you must not directly or indirectly induce or attempt to induce
a person who is an employee of the employer to perform any work in
any capacity in competition with the employer, and
- you must not canvas, approach or solicit any clients of the
employer for X amount of time after employment comes to an
end.
It is important that you understand the restraint of trade that
your employer or prospective employer is seeking to impose on you
before you sign the contract. If you would like advice on a
restraint of trade in your contract you can contact our restraint
of trade lawyers at Maurice Blackburn on 1800 810 812.
Gardening leave
In some cases your employer may direct you not to attend the
workplace during the notice period if you have resigned or had your
employment terminated. You might be directed to do little or
no work for that period. This is what is known as 'gardening
leave'. The length of gardening leave is often the same as a
post employment restraint of trade.
During any period of gardening leave you are paid your normal
contractual entitlements you would be paid if you were required to
perform normal duties. Whilst on gardening leave you
remain bound by your contract including any provisions in the
contract regarding other employment.
If your employer directs you not to attend work and places you
on gardening leave you can contact Maurice Blackburn on 1800 810
812 for advice on your rights and entitlements.
Is a restraint of trade enforceable?
The courts will only deem a restraint of trade valid if the
restraint is reasonable in all of the circumstances. It is
the employer who must establish that the restraint of trade it is
seeking to enforce is reasonable.
In deciding whether a restraint of trade is reasonable the court
principally looks at the following two elements:
- Does the employer have a legitimate interest to protect?
and
- Is the restraint of trade the employer is seeking to impose a
reasonable protection of that interest?
The Court will also consider the activities you are restrained
from undertaking, the length of the restraint and the geographic
area it applies to.
If the Court determines only part of the restraint is
unreasonable it can, in some circumstances, sever the unreasonable
element of the restraint of trade.
In NSW the Restraints of Trade Act 1976 allows the
Courts to exercise discretion to 'read down' otherwise
unenforceable restraint of trade provisions to modify them until
they are reasonable. That is the Court can amend the
restraint of trade in your contract to reflect what the Court
believes is a reasonable restraint, duration and locality of that
restraint.
Recently there has been a trend where employers seek to include
cascading restraint of trade clauses in contracts. Cascading
clauses contain a series of restraints that overlap. By doing
this any restraints that are held to be unreasonable and
unenforceable can be severed and the employer can enforce the
remaining restraints.
If your employer seeks to enforce or threatens to enforce a
restraint of trade you can contact Maurice Blackburn Lawyers for
advice on 1800 810 856.
How does the employer enforce a restraint of trade?
If your employer seeks to enforce a restraint of trade it may
make an application to the Supreme Court for an interlocutory
injunction awaiting a full trial. They must also show they
have a genuine prospect of proving the restraint of trade to be
reasonable and that there is evidence to show you have breached or
intend to breach the restraint.
If the Court grants an interlocutory injunction the matter will
be listed for a full trial where the Court will decide if the
restraint of trade is reasonable and therefore enforceable.
It is important to seek legal advice as quickly as possible if
you are served with an application to enforce a restraint of
trade. You can contact Maurice Blackburn on 1800 810 812
and we can assist you in defending an application in Court where
your employer (or former employer) alleges you have breached or
intend to breach a restraint of trade.