This article addresses some frequently asked questions about restraint of trade provisions – a commonplace employment practice. It also flags an important pending change to the law.
WHAT is a restraint of trade clause?
A restraint of trade clause is a provision in an employment agreement that restricts an employee’s activities after their employment ends. These clauses may limit an employee from working in the same industry for a specified period or prohibit them from soliciting former clients or colleagues.
WHY have a restraint of trade clause?
Employers use restraints by restricting the employee‘s business activities when they finish working in order to protect genuine business interests. Whilst it might seem logical to include such a clause, it is important that employers ensure the restraint is a reasonable one (see below).
WHO does a restraint of trade clause apply to?
You can include a restraint of trade clause in your employee’s employment agreement if the employee agrees to it. It is recommended employees seek advice if unsure about any restraint clause contained in a proposed employment agreement prior to signing. It is not uncommon for employees to overlook such a clause or not give it due consideration at the outset only to regret not comprehending or acknowledging the implications fully when they leave their job.
WHEN can you enforce a restraint of trade clause?
Restraints of trade are commonplace but are often held to be unenforceable due to being unreasonable. Whether a restraint of trade is deemed to be unreasonable and therefore likely to be unenforceable is based on a number of factors, including (but not limited to) whether the duration, geographical ambit, and / or scope of the restraint is too broad. The specific circumstances of the situation are to be considered. If you are an employer considering including a restraint of trade clause in your agreements, we recommended you get legal advice.
HOW to enforce a restraint of trade clause?
If your employee has breached a restraint-of-trade clause, get in touch with us. If appropriate in the circumstances, we can assist you in applying to the Employment Relations Authority or the Employment Court for an injunction preventing them from continuing the prohibited activity. You may be able to seek damages for losses incurred and penalties such as for breach of contract.
BUT NOTE: Employment Relations (Restraint of Trade) Amendment Bill
This Bill is currently before Parliament and if passed would prohibit restraints of trade in employment agreements for low to middle income workers.
It would also require employers of high-income employees to justify any restraint of trade and provide compensation should they choose to impose such a restriction.
Get in Touch
For help on this or any employment law matter, contact Tara Martin at Blackwood Montagna for expert guidance and support.
