What Should You Consider If Your Employee Goes to Work for a Competitor?

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Table of Contents

• Your Employee’s Notice Requirements
• Restraint Clauses
• Other Post-Employment Obligations
• Key Takeaways
• Frequently Asked Questions

Depending on your workplace, your employees may decide to work for a competitor. Whilst your employee may very well accept this new opportunity, your employee has certain post-employment obligations you should remind them about as their employer. These obligations include but are not limited to their:

• obligation to give you notice of their resignation;
• restraints of trade which can prevent them from working for a competitor; and
• other post-employment legal obligations regarding confidential information, intellectual property and returning your business’ property. 

By understanding your employee’s post-employment obligations, their departure from your workplace can be both amicable and a smooth transition.

Your Employee’s Notice Requirements

When an employee resigns from your workplace, they will likely have to give you notice of their resignation. A notice period is the length of time both you and an employee must give before ending your employment. By giving verbal or written notice, your employee gives you adequate time to conduct a proper handover. 

Ultimately, your employee’s notice period will influence when they can start working for their new employer. To determine what amount of notice your employee must give you, you should revisit the terms in the employment agreement. 

Often, an award or agreement will specify the minimum period of notice your employee must give when they resign. For example, the latest General Retail Industry Award 2020 includes the following table of notice periods.

These instruments will often specify requirements for withholding payments, such as:

• your employee must be at least 18 years old;
• you can only deduct from wages owed to your employee and not from other entitlements;
• a maximum amount you can deduct; and
• the deductions cannot be unreasonable in the circumstances.

Restraint Clauses

You may try to rely on any restraint clauses in your employment agreement to stop your employee from working for a competitor. The two main types of restraint clauses are:

1. non-competition clause, which attempts to restrict employees from working for a competitor for a specified period in a specified area; and
2. non-solicitation clause, which attempts to restrict your employees from soliciting clients and staff from your current workplace.

The enforceability of restraints clauses largely depend on the wording of the clauses and the facts of your situation. The general rule is that you cannot enforce restraint clauses unless:

1. the clause protects a legitimate business interest;
2. the clause is reasonably necessary to protect your legitimate business interest; and
3.  enforcing the clause would not be against the public interest in freedom of trade and competition.

Examples of legitimate business interests include:

• confidential information;
• intellectual property;
• trade secrets; and
• client or customer connections.

Examples of factors that are relevant when assessing the reasonableness of a restraint clause include:

• the nature of the activities restrained;
• your skills and experience;
• the nature of the industry;
• parties’ bargaining position;
• the duration of the restraint; and
• the geographic area of the restraint.

Cascading Options

Employment agreements will often contain restraint of trade clauses in the form of cascading clauses. This means that restraint areas and periods will successively reduce over time. Employers often use cascading clauses since, in the instance where the restraint on trade is unreasonable, a court will not deem the entire clause unenforceable. Instead, a  court will choose the most reasonable option from the cascading clause and cross out the others. Below is an example of cascading options.

Other Post-Employment Obligations

Upon resigning, your employee might still be under some obligations that will continue past the end of their employment. These post-employment obligations will remain in place regardless of whether you are resigning to work for a competitor or not.

Return of Property

When exiting a business, your employee needs to return any business property or equipment in your possession, such as:

• documents and records;
• keys;
• passes;
• mobile phones;
• credit cards;
• computers; and
• vehicles.

Intellectual Property 

As an employer, you will generally own all intellectual property (IP) that your employees develop during and in connection with their employment. Any IP your employee accessed during their employment, such as reports or templates, will remain your property. Other examples of IP include:

• literary, musical or artistic works;
• inventions;
• computer programs;
• processes; and
• strategies.

Your employee’s failure to return or destroy IP according to their employment agreement can result in a breach of their employment obligations. 

Confidential Information

In a general sense, confidential information is any information that the law or your employment agreement deems confidential. This means there are likely to be limits on who can access this information. 

Your employee is generally prohibited from disclosing or reproducing any confidential information obtained during their employment. Examples of confidential information include:

• business plans;
• client lists;
• marketing strategies; and
• company manuals.

Similarly to IP, your employee should return or destroy any confidential information obtained from your workplace per their employment agreement. 

Employment Essentials Factsheet

As an employer, understand your essential employment obligations with this free LegalVision factsheet.

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Key Takeaways

Before your employee decides to work for a competitor, you should consider:

• the notice period your employee must give you; 
• any restraints of trade that may affect whether your employee can work for a competitor; and 
• other post-employment obligations regarding returning property and confidential information. 

If you need help revising your employment agreement, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions