Can a restraint clause protect your business?


It is a general misconception that Employers have no recourse in preventing ex-employees from competing with their business or soliciting their clients because restraint clauses are unenforceable.

While it is true that the courts will not allow employers to prevent former employees from earning a living by using the skills they’ve acquired, this is only the first step in the courts considerations on whether the restraint is enforceable.

Each restraint clause will be assessed on its merits, with the courts weighing up the former employee’s interest to be able to continue to earn a living with the employer's interests of being able to reasonably prevent competition; disclosure of confidential information to competitors and solicitation of clients and employees when the employment relationship ends.

The courts will enforce restraints where they’re found to be reasonable and genuinely designed to protect the legitimate business interests of the employer.

If a restraint clause isn’t ‘reasonable’ then a court will usually find the whole clause void and unenforceable. It’s therefore important that the restraint is well drafted and provides the court with options that if chosen by the court will make the terms of the restraint reasonable. Without these options, if part of the clause is found to be unreasonable, the court will have no choice but to void the whole clause.

Restraint clauses are vital in protecting an Employers’ competitive advantage in a particular industry or market, particularly those that rely on client relationships or specialised skills of employees. Without a restraint clause in a contract of employment, and the court deciding the terms of the clause are reasonable and enforceable, the court will not prevent an ex-employee from working for a competing business or attempting to solicit clients or employees. It’s therefore important to consider incorporating a restraint clause in contracts of employment – particularly for higher level employees or employees with specialised skills.

Employers need to be careful of using standard restraint clauses, or clauses found by searching the internet, as these may not protect their business in the way they intended.