Employ­ment law myth No.7: ​“There’s no point hav­ing a restraint of trade in an employ­ment contract”

It is a com­mon mis­con­cep­tion that courts don’t enforce ​“restraints of trade” (those claus­es in employ­ment con­tracts pre­vent­ing for­mer employ­ees from com­pet­ing with their pre­vi­ous work­place, solic­it­ing their clients and/​or poach­ing staff).

In truth, courts will and fre­quent­ly do, pre­vent for­mer employ­ees from act­ing in breach of their con­trac­tu­al restraints. That is not to say that employ­ers have ​“carte blanche” in this area: a court will not enforce a restraint if it con­sid­ers that there is not a legit­i­mate busi­ness inter­est to pro­tect. It will also be reluc­tant to do so where the effect of enforc­ing the restraint will mean that the employ­ee can­not per­form any form of mean­ing­ful work. Some­times the area of restraint is con­sid­ered too wide, some­times the length of restraint is too long. But in many cas­es a court will enforce even lengthy and wide-reach­ing restraints. Ear­li­er this year, a WA court con­sid­ered a 10 year-long restraint of trade to be rea­son­able at an ini­tial ​“inter­locu­to­ry hear­ing” (ie a hear­ing con­sid­er­ing inter­im reme­dies before decid­ing on the final result).

Although this case turned on its own facts (the employ­ee was pre­vi­ous­ly the own­er of the busi­ness and had received a large pay­ment in lieu of agree­ing not to com­pete) it is still a use­ful illus­tra­tion that courts can be will­ing to enforce even long and wide-rang­ing terms.

For any advice on restraints of trade please con­tact: sro@​swaab.​com.​au or rbo@​swaab.​com.​au