Post-Employment Restraints

Do you have a restraint of trade clause in all of your employment contracts?

Do you believe your business is well protected?

Senior or executive staff resigning and taking valuable customer and confidential information with them could result in extensive damage to a business. Post-employment restraints or restraints of trade clauses, that come into effect after employment ends, can protect the legitimate interest of the employer. 

The Purpose for restraints of trade clauses, found in employment contracts, is to protect trade secrets, confidential information as well as customer and staff connections. These restraints will only be enforceable if they are considered as reasonably necessary to protect the legitimate interests of the business and employer.

Reasonableness of the restraints should be considered and decided at the time of signing the employment contract.  The parties will typically negotiate the terms and should seek expert advice in regard to the length and effect of these restraints.  These are normally applied for a specific period and in relation to a particular geographic area.  Parties should consider including what is referred to as a ‘waterfall’ clause, which clause could reduce the risk of invalidating the restraint on the ground of unreasonableness.  This clause would contain a number of alternative periods of time and geographical constraints.

The onus is on the employer to prove that the clause is in fact reasonable and should be valid and enforceable.  The courts will consider whether the employer has a real and legitimate interest that requires protection as well as whether the restraint is a reasonable protection of such interest, when considering the enforceability of the restraint.

The most common legal remedy sought by employers is an injunction to stop the employee or rather a former employee from acting in a way, which would breach the terms found in the former employment contract.

Contact Allied Legal

Restraints in employment contracts that are enforceable and valid are crucial to protect an employer and the legitimate interest of the business. Allied Legal’s commercial lawyers can help guide you through the process and advice you on these and other issues.  We provide complimentary 30-minute initial consultations to help understand your needs.  Please contact us when you are ready to seek specialist advice: http://alliedlegal.com.au/contact/.