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Do restraint clauses actually work?

19 Nov 2015

Topics

  • Business Law
  • Employment Law

Restraint of trade or non-competition clauses in employment contracts are an effective tool for employers who want to protect their business interests following the end of an employment contract.

However, these clauses can be detrimental to job seekers who remain contractually bound by these clauses, especially where they seek to obtain employment within the same industry (often the only industry in which they hold qualifications).

Restraint of trade clauses seek to restrict and prohibit various types of employment, business or other activities engaged in by a former employee, for a certain period of time following the end of the employment contract. These clauses generally set out a geographical area in which the former employee cannot engage in the specified activities, and can be defined by area codes and/or distances (often a radius) from a certain location.

For these clauses to be enforceable and valid, the courts must be satisfied that:

  • the clause is tailored to the specific business interests of the employer;
  • it protects a legitimate business interest; and
  • the restraint is reasonable.

In considering whether a clause in reasonable, the court may have regard to the employee’s right and ability to earn an income, and weigh it against the employer’s right to protect their business interests.

The options available to employers, who believe a restraint clause has been breached include seeking an injunction to prevent the former employee from breaching the clause, and making a claim for damages suffered as a result of the breach.

If you need any assistance in drafting an effective restraint of trade or non-competition clause, or would like advice regarding whether specific a clause is valid and enforceable, please contact a member of our employment law team.