Reading time: 5 minutes

A restraint of trade clause, also known as a non-compete or a non-solicitation clause, is a clause you will often find in employment agreements. The clause prevents an employee from acting in a way that will detriment their employer when employment has finished. Such actions may include taking customers, suppliers or staff from the employer. It can also include using the confidential information obtained during employment to compete with the employer. If you are preparing to resign and work for a competitor you should read through your employment contract. You should also do this if you are leaving to set up shop on your own. This will allow you to understand whether you are subject to a restraint of trade clause, and interpret how it applies to your circumstances. 

This article is a user guide on how to interpret your restraint of trade clause. It is important to note that the law relating to restraint of trade clauses is complicated from the outset. There is no one size fits all. The enforceability of a restraint clause depends on several subjective factors related to individual facts at hand.

What Does The Law Say?

Except for New South Wales, no state or territory-specific legislation governs the validity of restraint of trade clauses. 

Regardless of state or territory, the default position is that restraint of trade clauses are void, but will be enforceable only to the extent that it is reasonable in relation to the interests of the parties to the restraint and the interests of the public. 

How Will a Court Interpret a Restraint of Trade Clause?

When looking to enforce the restraint clause, the onus is on the employer to prove that the clause was protecting a legitimate business interest and that the clause itself is reasonable in scope. If the employer can prove this, the employee must show that the clause is not in the public’s interest to enforce.

A court determines what is both ‘reasonable’ and a ‘legitimate business interest’ by examining: 

  • the subjective factors of the employment relationship; 
  • contractual negotiations between the parties and the employee’s proposed new venture;
  • the level of remuneration and seniority of the role;
  • the extent to which the employee in question was the face of the business; and
  • the market in which the employer operates.

A court will also scrutinise the individual wording of the various sub-clauses of the restraint. A far-reaching restraint is less likely to be enforceable at all, as a court may not consider it to be reasonable. The most commonly recognised business interests are an employer’s trade secrets and good will (customers and clients) and staff.

The Ultimate Guide to Selling a Business

When you are ready to sell your business and begin the next chapter, it is important to understand the moving parts that will impact a successful sale.

This How to Sell Your Business Guide covers all the essential topics you need to know about selling your business.

Download Now

Examine the Available Evidence

To enforce a restraint of trade clause, the employer will need to be able to prove the employee’s actions presented a real risk to their business.

Examples of evidence commonly used in such cases include: 

  • emailing client lists to personal addresses;
  • misappropriation of client files or internal system documents and/or documentation showing the commonality of target markets;
  • soliciting clients to be serviced by a competing business; and
  • disclosing or misusing confidential information obtained during employment.

Consider Your Damages

Similarly, even if you can show a threat, there is no point enforcing a restraint unless you can demonstrate your business will suffer damages. A court cannot award damages to an employer if they cannot show that the breach resulted in a loss. Such damage does not necessarily have to be monetary. Often it is in the form of actual or lost revenue from an existing client base. It can also include a threat to confidential information, including future designs and marketing plans.

Key Takeaways

A restraint clause must have a reasonable geographical and time scope and protect a legitimate business interest or public interest to be enforceable. Indeed, an employer must prove that the employee’s actions have or are likely to be detrimental to the employer’s business interests. Ultimately, the detriment a breach causes to the employer is not limited to financial impacts. 

If you need help to interpret a restraint of trade clause, LegalVision’s commercial contract lawyers can help. Call them on 1300 544 755 or fill in the form on this page.

Frequently Asked Questions

What is the purpose of a restraint clause?

A restraint clause aims to prevent an employee from conducting themselves in a way that detriments their employer, even after they have ceased working for the employer. 

How can I find the restraint clause in my employment contract?

The restraint clause may also be labelled as the non-compete clause or the non-solicitation clause.

Are all restraint clauses automatically valid in court?

When looking to enforce a restraint clause, the onus is on the employer to prove to the court that the clause should be enforced because it is reasonable in scope and necessary to protect a legitimate business interest.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Angie Lum | LegalVision
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards