Restraint of Trade? Beware the fine print

17/04/2019

When most people are negotiating the terms and conditions of a new job, the main priorities are usually the pay, the location, the people and the opportunities for progression. And yes, for some whether there are bean bags and zen zones.

Very few people would start a new job thinking about what leaving that same job might look like and fair enough too.

Most employees in Australia have a contract of employment. It is often a letter, sometimes a more formal document, and can detail anything about the employment relationship such as salary, leave, disciplinary matters and location.

One of the matters which is increasingly contained in contracts of employment are restraints of trade. It is important that employees understand what this is and how it might affect how you leave your employer and what you do post it.

Put simply a restraint of trade is a contractual obligation inserted into contracts of employment to try to prevent an employee from working for a competitor or even in the same industry in competition with their employer for a period of time after the employment ends. They often also prevent an employee from approaching or taking clients they had dealings with during their employment for a period of time.

Gordon Legal has represented employees who have these clauses. They are increasingly common and complex especially for those employees engaged in the professions and at executive level. They are often a source of great dispute and angst for employees.

The enforceability of a restraint of trade is a matter for the courts. Employers often send threatening letters to former employees warning them about the restraints that exist in their contract. If you get one of these letters it is important you take advice on it. Do not ignore it and let it get out of hand.

The law regards restraints of trade with suspicion. They can be enforced but they have to be reasonable and only necessary for the legitimate protection of the employer. They cannot be simply used to prevent competition. In examining the restraint the Court will often look at whether the employer as a legitimate protectable interest and that the restraint is no more than is necessary to protect that interest.

A recent client we represented was subject to one of these clauses. They secured a new job on better terms and conditions and wished to move to that new employer immediately. Unfortunately for the employee their contract of employment contained a restraint preventing them from working in the same industry for a period of three months after they left their employer. This was not paid time off. It was a restraint which put them on the sidelines. This is very difficult for most employees. Most of us do not have the luxury of affording to have three months unpaid on the sidelines.

Thankfully for our client there was a way to challenge the validity of the restraint and we were successful in negotiating a resolution. This is not always the case. It is why we always stress to our clients the importance of checking each detail in any new contract and thinking ahead to what it might look like when you want to leave your employer.

Our job is stop these disputes going to Court and protect your interests. There are ways to defend these claims but early advice is important. It is always better if you are able to think ahead on these clauses. It might not be possible to negotiate it away completely but you might be able to make it more manageable.

Gordon Legal specialises in these disputes. We take pride in helping employees protect their rights. Contact us on 1800 21 22 23 today and let us help you understand your rights and entitlements.