Enforceability of Restraint of Trade Clauses in employment contracts

Enforceability of Restraint of Trade Clauses in employment contracts


Restraint of trade clauses continue to grow in popularity as the rise of freelance workers encourages employers to protect their goodwill.

Many modern employment contracts contain restraint of trade clauses to the following effect:-

1. You will not actively approach or solicit any client’s of your current employer; and
2. You will not accept instructions from client’s of your current employer.
3. Cascading time periods and areas that the restraints remain enforceable for, such as:-
a. 12 months; if not
b. 6 months; if not
c. 3 months.

At common law, restraint of trade clauses are contrary to public policy and are generally unenforceable. In NSW however, such clauses are not prima facie void and are only valid to the extent to which it is not against public policy. This means a Court will only enforce restraint of trade clauses to the extent required to only protect the reasonable interests of the employer, no further.

Some of the relevant factors that the Court considers are summarised in the decision of Stacks Taree v Marshall [No.2][2010] NSWSC 77 and include:-

(a) Whether the clauses go any further than protecting the genuine goodwill of the employer;
(b) What the parties negotiated and agreed at the time of entering into the contract;
(c) Is the restraint of trade clause restricting competitive activity;
(d) Whether the employer’s trade secrets obtained through the ordinary course of business will be disclosed;
(e) How the relationship between employee and relevant clients arose;
(f) Whether the clause needs to be read down pursuant to the Restraint of Trade Act 1976 (NSW)

It is important to note that these clauses may only be used to shield the goodwill, legitimate interests and trade secrets of the employer, not to stop competition and consumer choice.

Because every job is unique, careful analysis is required on a case by case basis. Contact our offices to make an appointment and speak with our lawyers to discuss your circumstances.

Bruin Hutchings

Bruin Hutchings

Bruin joined APJ Law in late 2016 after completing his postgraduate studies and professional development with the firm. Bruin completed his undergraduate studies at the University of New England and Postgraduate Studies at the College of Law. During his undergraduate degree Bruin studied in several jurisdictions including Pennsylvania, USA and in Shanghai, China. Keenly mentored by the Senior Partners of the... Read More

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