You probably know the story all too well.
You were recently successful in landing your dream job – but the company wanted you to sign an employment contract that had this complicated and confusing restraint of trade clause in it. What does it even mean?
Or perhaps you recently resigned from your position, only to be met by your Manager in the doorway who is waving your employment contract in your face telling you that you can’t work anywhere else.
Or maybe you are somewhere in between. You are thinking of leaving your job and hoping to secure a great new role elsewhere, but in the back of your mind there’s that niggling feeling that there might be something in your employment contract that says you can’t.
Whatever your situation might be, the same question resounds strongly – what even is a restraint of trade clause anyway?
What is a restraint of trade clause?
Restraint of trade clauses are clauses which business owners often include in their employment contracts to try and prevent you from one day leaving the business and either starting up your own rival business, joining a competitor or taking customers or confidential information with you.
It serves to stop (or restrain) you from working (or trading) in a way that might damage the business interests of your current/recently former employer.
Restraint of trade clauses can take a variety of forms and can mean different things depending on the circumstances of your employment. They are seldom standard clauses.
Sometimes they can be fairly short and sweet but more often than not, they are complex, lengthy and confusing. They will have a number of different definitions that you need to continually refer to elsewhere in the contract. They are rarely straight forward or easy to digest.
What does it look like?
Often the restraint of trade clause will have a number of different parts to it. For example:
- It might include a non-compete provision, which seeks to stop you from leaving and competing with your employer’s business within a particular geographical area and for a specified period of time.
- It might include a non-solicitation provision, which seeks to stop you from leaving and poaching or encouraging customers to follow you to your new place of work.
- It might include another variation of a non-solicitation provision, which seeks to prevent you from leaving and poaching or encouraging your colleagues to follow you to your new place of work.
When you start your employment, you might think this all sounds pretty reasonable.
You have high hopes that this job will be the best job in the world. Everyone will treat you great. You’ll never have to leave or look for another job. With these thoughts in mind, you might happily pick up the pen and sign on the dotted line without giving it too much more thought…
Unfortunately, these high hopes are the exception and not the norm. Most of us will eventually change jobs, either because we are unhappy in our current place of work or because a better opportunity has come along. You might get offered more pay or other perks, such as improved work-life balance or better opportunities for career advancement.
Suddenly, your signature on the employment contract holds a lot more weight. It could prohibit you from furthering your career the way you intended.
The best time to get advice about your restraint of trade clause is before you sign any employment contract. Before you jump for joy that you got the job, you need to take a step back, read the contract and get legal advice so that you understand exactly what it is that you are being offered.
You may not know this, but you can actually negotiate the terms of your employment contract. Just because there is a clause in the contract doesn’t mean it is set in stone. Armed with the right advice you can often negotiate a fairer bargain.
But what if you already signed the contract – is it too late?
If you are in a situation where you have already signed the employment contract (and agreed to the restraint of trade clause) and are now wanting to leave your employment, it’s time to dig out the contract and get some advice.
Restraint of trade clauses will typically only be enforceable at law if it is reasonably necessary to protect the legitimate business interests of the employer. So, the big question is – is yours reasonable?
Whether a restraint clause is reasonable will depend on the particular circumstances of your employment. It will also depend on the actual wording of the clause itself and whether it is clear and unambiguous.
Some of the things that the Courts will look at to consider whether the restraint is reasonable, includes:
- The nature of your employer’s business;
- The scope of the activities that your employer is seeking to stop you from doing – for example, does it say that you can’t work for any business that is competitive in nature? Or does it limit it to activities that relate to your skillset?
- The geographical area of the restraint – for example, does it say you cant work in Australia? Or does it provide a more limited area?
- The duration of the restraint – for example, does it say you can’t compete for 24 months? Or is it limited to a short timeframe after the cessation of your employment?
- The nature of the role that you held in the business – for example, did you have complete access to all confidential information and other sensitive commercial information?
- The degree to which the restraint might be necessary to protect your employer’s goodwill;
- Any other factor that is relevant to your particular employment as well as the customs and practices within the industry; and
- Any public interest considerations.
As you can see, there are a multitude of factors that play into whether a restraint clause will be enforceable or not. However, the risk of getting it wrong can be life altering and super expensive.
What could happen if you breach the restraint?
If you breach the restraint clause, your employer could commence litigation against you.
They might seek an interlocutory injunction against you which would prohibit you from working in your new employment or role or dealing with their customers.
They could seek payment of damages for breach of the contract, plus payment of their legal fees and interest. Ouch!
How can Rubix Legal help?
At Rubix Legal, we regularly advise employees on restraint of trade clauses. We help you to make sense of what it all means and give you the run down of what your options are.
Our passion is to help you find your voice in the workplace. Part of this means helping you live out your passion and calling in life. Restraints can put a serious road block in your plans.
We give super practical advice on how you can move forward in your career without breaching your post-employment obligations.