Restraint of Trade Clauses in Employment Agreements

A restraint of trade clause in an employment agreement may be used to prevent an employee competing with an employer, and be used to restrict an employee from soliciting an employer’s clients, suppliers and employees.

Without a clause expressly setting out the terms of restraint, an employee is generally free to work for a competitor, or to approach an employer’s clients without restriction after the employment relationship has come to an end.

Generally the courts are reluctant to enforce a restraint of trade clause against an employee, unless there is a genuine business interest to be protected, and the terms of the restraint are reasonable.

Regardless of the written terms of a restraint clause in an employment agreement, the courts are able to look into the arrangement and determine whether the arrangement is reasonable in all the circumstances.

The courts are able to alter the terms of the clause where they are found to be unreasonable. For this reason, when considering a restraint of trade for one of their employees, an employer is wise to ensure that:

  • The restraint is reasonable in terms of the geographic area and length of time. That is, the restraint should be no wider than necessary to protect the employer’s business interest.
  • The business interest the employer is trying to protect is clearly identified.
  • The effect on the employee has been considered. It is important an employer does not solely try to restrain their employee from using their own skills, as opposed to the confidential information attaching to their business.

Restraint of trade clauses, and other similar clauses such as non-solicitation and non-competition clauses, can be tricky and professional advice on this issue is a good investment if an employer has concerns about protecting their business secrets, suppliers, clients and employees.

If you have any employment or HR queries that you would like assistance with, please contact us.

This article is intended as a point of reference and should not be relied on as a substitute for professional advice. Specialist advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this article.

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