It is very common for employment contracts to have a ‘restraint’ or ‘non-compete’ clause. However, if these are not properly drafted they will be unenforceable and useless.
As employers know, employees build valuable connections with clients, customers and suppliers, over time that benefits the business by building goodwill and increasing business revenue. Every businessman knows that relationships are the lifeblood of profitability.
If an employee resigns or otherwise leaves the company, it is important to ensure that they don’t take your business’s lifeblood with them to a competitor.
New South Wales’ courts have held that restraint clauses must not be unreasonably onerous. Therefore, a ‘cascading structure’ will make these clauses enforceable.
A common way of drafting is to begin with a broad restraint period and area (e.g. for 5 years across all of Australia) and then narrow the focus (e.g. for 6 months within 12 kilometres of the employer’s business). Courts have also mentioned several other technical requirements regarding severability of clauses.
If you have further questions, please contact us at frank@franklaw.com.au
This is not legal advice.
Written by Tim Cargill & Zdenka Marinov and edited by Andrew Graham.