“You can’t work for them” – Restraint of Trade in Employment.

One of my favourite bugbears is the restraint of trade clauses commonly found in employment agreements. I review a few of these both for employers and employees and most (if not all) would be in part or in full, void, and only seem to exist to scare (ex) employees into not working for the opposition.

Leaving aside the ones that are so bad they were obviously written by the first year HR intern, who in turn got it off the internet, they all seem to have the same flaws.

1. The clause attempts to stop someone from carrying out their trade or profession either ‘for ever’ or for an inordinate length of time; and / or
2. The clause attempts to stop someone carrying out their trade or profession ‘in the whole of Australia’ or ‘the whole of Victoria’;
3. The clause attempts to stop someone working for anyone who ‘may be or is’ a competitor, or ‘who does’ (or may do) the same kind of work;
4. The clause confuses obligations around misuse of Confidential Information with a restraint of trade.

The starting position is that restraint of trade clauses are usually void unless ‘they are reasonable in the interest of the parties’ (the onus of proof being on the party relying on the restraint).

When assessing reasonableness the courts will first consider whether there is a ‘legitimate interest’ or interests that ‘require protection’ and, if so, will assess whether or not the restraint does not more than is necessary to protect that interest; if the restraint goes beyond what is necessary, then it will not be considered reasonable and the restraint will fail.

Reasonableness means reasonable as to:

1. Geographical limit (10km may be ok, the whole state probably not);
2. Subject matter of the restraint (what you are restrained from doing;)
3. One year may be unreasonable, three or six months may be fine.

However, mere protection against competition does not constitute a ‘legitimate interest’ and will fail.

So, if you have (as many do) a restraint of trade clause in your employment agreement, get it looked at by a lawyer who understands what is (and is not) an appropriate restraint, or just delete it.