A restraint clause is often found in employment agreements/contracts.

A typical restraint clause prevents a departing employee from working for a competitor in any capacity for a specified period. Other restrictions may also be included, such as not soliciting a former employer’s clients, customers or staff, and not using a former employer’s confidential information.

The purpose of a restraint clause is to protect business interests such as: client information, intellectual property, employees and trade secrets, by restricting the behaviour of previous employees.

Restraint clauses are particularly common in employment agreements/contracts for professional and senior/managerial employees. The most common restraint of trade clauses are:
• Non-compete clauses;
• Non-solicitation clauses;
• No poaching and recruitment clauses; and
• Confidentiality clauses.

To protect the legitimate interests of your business, you can only enforce a restraint clause to the extent that is ‘‘reasonably necessary’’. However, whether a provision is considered ‘‘reasonably necessary’’ will depend on its wording and the facts of each particular employment relationship/situation.

What is reasonable depends on whether:

• the clause protects a legitimate business interest;
• if the restraint is reasonably necessary in order to protect that legitimate interest.

A legitimate business interest might include:
• a commercial interest, such as confidential information that would cause damage to the Company if leaked; or
• the goodwill of the Company, such as the relationships between the Company and its customers and partners.

To ensure a restraint is enforceable, it is important to make sure the clause is properly drafted and tailored to the individual facts and circumstances of the employment relationship/situation. Restraint clauses typically upheld by Australian courts are one of between three and twelve months’ duration, restricted to a specific geographical area and reliant on a special need to restrain conduct.

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