A recent McKinnon survey showed that 50% of Australia’s workforce is covered by some form of a restraint of trade or non-compete clause.
But how airtight are these clauses and can they be enforced?
Types of restraints of trade
Common restrictions of trade include:
- Confidentiality clauses
- Non-solicitation clauses
- Non-compete clauses
- Non-poaching restrictions
Enforcing a restraint of trade
How enforceable a restraint clause is depends on how reasonable it is. In order for them to be enforced, they must be shown to be protecting the employer’s legitimate business interest or the reputation of the business.
Generally, trying to minimise competition is not considered a reasonable enough reason to enforce a restraint of trade.
The court will consider several factors in determining how reasonable a post-employment restriction is. This will include:
- The employer proving legitimate business interests are at stake including:
- Confidential information or trade secrets
- The business’s reputation
- The business’s goodwill with clients and suppliers
- The nature of the work the ex-employee is prevented from doing
- The length of time the ex-employee is prohibited from doing this work
- The geographic location in which this restraint is imposed
The court will also consider the livelihood of the ex-employee and how this will affect their ability to earn a living.
Blaine Hattie is a business lawyer and principal at Sutton Laurence King Lawyers.
Starting a new construction project? To ensure it is legally-sound, contact Sutton Laurence King Lawyers in Victoria today on 03 9070 9810 or email .