A restraint of trade is a contractual term that seeks to limit what an employee can do after their employment ends.
Usually, they will be designed to prevent you from working for competitors for a period of time, pinching your former employer’s customers or staff, or setting up your own business in direct competition with your previous employer.
A restraint will often put limitations on your ability to use or reveal confidential information.
Just because your contract (or your employee’s contract) has a restraint of trade, does not mean it is valid and enforceable.
The courts recognise the public and individual interest in allowing a person to trade freely, including the right to sell their own labour, and have interpreted restraint clauses very strictly. This means that the area of post-employment restraints is very technical.
To dispute, or enforce, a restraint you must address whether the restraint is:
- designed to protect a legitimate interest of the employer recognised by the law; and
- the extent of the restriction is no greater than is necessary to protect that interest.
If your employment is subject to a restraint clause, we recommend seeking legal advice to understand the scope and impact of this clause. This is particularly important if you are looking to work for a competitor, or start your own business.
If you receive a letter from your former employer threatening you with court proceedings for breaching a restraint, you should seek urgent legal advice. The failure to do so can be catastrophic for your career, with the court able to issue injunctions stopping you from working in breach of the restraint, ordering you to pay compensation to your former employer and that you pay their legal costs.
If one of your employee’s has left and is poaching your clients, or misusing confidential information, you must act quickly. The usual remedy sought from the courts, if negotiations fail, is seeking an injunction to prevent the employee breaching the restraint.
This is a powerful remedy. Your ability to obtain such relief from the courts may be affected if you don’t act quickly to protect your businesses interests.
We have expert knowledge in restraints of trade and can assist you with:
- advice on the enforceability of the restraint;
- drafting effective and enforceable restraints;
- resisting the enforcement of a restraint; and
- enforcing a restraint.