Reading time: 3 minutes

As an employer, you think you have your interests covered by having an appropriately drawn up employment agreement, to which you change the name, title, and salary before issuing to new employees. That document, your ‘master agreement’ if you will, contains a restraint of trade clause with lots of restrained activities and numerous cascading provisions, so it must be enforceable, right?

Unfortunately, that is not always the case, as the restraint clause may be deemed unenforceable if you later attempt to enforce it against a former rogue employee in Court. In determining the enforceability of a restraint clause, the Court will examine many subjective factors on a case-by-case basis. The factors will apply very differently from your secretary to your CEO, as well as the factors that should be borne in mind in customizing the variables of the restraint clause for each and every new employee.

Issues to consider

Here are some of the issues to be considered:

  1. Restrained activities – the restrained activities should not be too broad. Restraining an employee from working for a competitor ‘in any capacity’ would, in effect, mean your CEO can’t take a job as a cleaner with a competitor. This is likely to be deemed unreasonable, and thus unenforceable if challenged in Court.
  2. Restraint time – while it is common place to have cascading provisions, those provisions should be changed on a case-by-case basis. Generally, the more senior the position, the longer the restraint can be (though we would never recommend anything over 36 months, even for the most senior member of staff).
  3. Restraint area – a restraint that, in effect, stops someone from working in their field of expertise for the whole of Australia is likely to be deemed unreasonable. Think about the area, and what is reasonable in light of your business operations.
  4. Bargaining power of the parties to the contract – while many employees just ‘sign what they are given’ at the commencement of their employment, affording them an opportunity to raise issues or negotiate terms will work in your favor if you subsequently need to enforce a restraint clause.
  5. Consideration – the restraint clause should state that it is entered into freely by the employee, in consideration of the other terms of the agreement.

Conclusion

When in doubt, or when the breach of such a restraint clause could have some serious ramifications for your business, it may be best to talk to an employment lawyer. Your lawyer will be able to draft a suitable restraint clause for that particular role.

Webinars

COVID-19 Vaccines In The Workplace

Thursday 10 February | 11:00 - 11:45am

Online
Can you compel employees to have a COVID-19 vaccine? Understand your rights and responsibilities as an employer. Register today for our free webinar.
Register Now

Preventing Wage Underpayment In Your Franchise

Wednesday 16 February | 11:00 - 11:45am

Online
Learn how to identify and prevent wage underpayment in your franchise. Register today for our free webinar.
Register Now

How to Prevent and Manage Commercial Contract Disputes

Thursday 24 February | 11:00 - 11:45am

Online
Learn how to prevent and manage common commercial contract disputes. Register today for our free webinar.
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

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer