In Australia the common law doctrine of restraint of trade must not conflict with the regulations on restricting trade imposed by the Competition and Consumer Act 2010. Restraint of trade clauses are designed to impose restrictions on the freedom to engage in trade or employment when the restraint can be shown to be reasonable. To enforce a restraint of trade there are several steps that must be followed, including:

  • Make sure you have solid evidence proving that the restraint of trade has been breached. Hearsay is not enough proof to enforce a restraint of trade in a court;
  • Try to get evidence of the breach through independent parties, such as a lawyer or hired private investigator. It is not illegal to find proof of breach of a restraint of trade using “devious means” as long as they are not illegal means. You might want to call the business where the person is working to listen to the way the phone is being answered. Ask a friend to visit the business and buy some samples of the goods. Make sure you keep a copy of the receipt. Photos and videos are a great form of proof if it supports your claim;
  • Have your lawyer put together a firmly worded letter of demand, the purpose of which is to notify the other side of the alleged breach of the restraint of trade. This notice gives the breaching party a chance to make amends and cease breaching the restraint of trade clause. The time limit for compliance can be very short if the person is currently an employee, as the circumstances are more urgent. If the person is an ex-employee, it might be 1-2 weeks.

What to do if the breach continues

If the person continues to breach the restraint of trade clause and refuses to stop trading, you have two primary options as to how to proceed:

  1. If the person is a current employee, you can terminate his or her employment contract;
  2. Commence court proceedings against the party that is in breach of the restraint of trade.

What are the available remedies for breaching a restraint of trade clause?

If you successfully enforce a restraint of trade clause, there are several remedies you may wish to seek, including the following:

  1. You may seek what is called ‘an account of profits’, meaning you may be entitled to the trading profits earned by the breaching party;
  2. You may seek a court-ordered injunction, which prevents the breaching party from carrying on the activity that breaches the restraint of trade; or
  3. You may also seek financial damages as compensation for the resulting breach.

Should the breaching party fail to cease trading and litigation is the only remaining option, you must be swift in bringing proceedings and contact your contract lawyer as soon as practicable. The longer the delay in pursuing the party you allege is in breach of the restraint of trade, the more challenging it will be to succeed in bringing an injunction against them.

How to respond to a restraint of trade clause

As a party being restrained, you will firstly need to inform yourself of the exact terms of the restraint of trade clause so that you know what you can and cannot do according the clause. If, for some reason, you wish to undertake activities that may be in breach of the restraint of trade, you’d be wise to consult a contract lawyer first to determine the possible repercussions of your actions. If you are in breach of the restraint of trade, it is wise to assume that the other party will go to every length to try to stop you. They may initiate court proceedings, which could lead to you having to pay damages and the legal fees of both parties.

It might be worth seeking advice from a contract lawyer. Contract lawyers, being experts in the area, will be able to give you sound advice on whether or not your conduct breaches the terms of the restraint of trade. Your contract lawyer can also give you advice on the enforceability of the restraint of trade clause, i.e. whether or not it is reasonably restrictive. If a court finds the restraint of trade clause to be overly onerous and far-reaching, it might become invalid and ineffective. If your contract lawyer advises you that the clause is too broad, you may wish to take a chance by continuing with your activities. This is a difficult commercial decision that you should certainly put some thought into.

It is advisable that you put the other party on notice of your intentions before you commence. While this presents the other party with an opportunity early on to approach the Courts, it also makes it much more difficult for them to do something about it after the notice has been given. This in turn makes it harder to get an injunction.

Otherwise, another option is to actually have the restraint of trade clause set aside for its invalidity. The downside is that both options are expensive and risky, a predicament you got yourself into when you signed a contract with a restraint of trade clause.

Conclusion

If you are a party to a contract, or currently have restraint of trade clauses preventing you from undertaking certain commercial activities, you may wish to speak with a contract lawyer. Our contract lawyers at LegalVision are experienced in both negotiation and litigation and can provide an obligation-free quote for fixed-fee advice. Just give us a call on 1300 544 755 or fill in the form!

Lachlan McKnight

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