Employers frequently include post-employment restraint clauses in contracts to safeguard their business interests by limiting former employee’s ability to engage in certain activities after leaving the company.

However, these clauses are generally considered void (unenforceable) unless they can be justified as reasonable and necessary in the circumstances of each case. For a restraint clause to be enforceable, it must provide no more than adequate protection to the employer without being harmful or unfair to the public.

What business interests can be protected?

There are traditionally two legitimate business interests that can be protected by restraint of trade clauses:

1. Confidential Information

This refers to business-specific data that is not publicly available and provides a competitive advantage. This may include: 

• Customer lists
• Price lists
• Tender documents 
• Profit margins 
• Confidential client rates (not disclosed on the company’s website)
• Business strategies
• Client contact details, such as PO Boxes and non-public email addresses.

To establish that information is confidential, clear and detailed evidence is required. Simply stating that something ‘is confidential’ is insufficient. Supporting evidence could include restricted access (e.g., limited to a select group of employees), password protection, or demonstrating the competitive advantage a rival could gain if the information were disclosed.

2. Customer Connections

This refers to an employee’s role in representing the business and their ability to influence client relationships. Evidence of these connections can include:

• Email communications
• Client meetings or business lunches
• Price negotiations
• Telephone records

The strength of these connections is often assessed by the estimated time required to sever the relationship between the client and the business.

Key Considerations when Drafting Restraint of Trade Clauses 

Restraint of trade clauses should be drafted carefully and should be specific to each individual employee in terms of geographic scope and duration.

Enforcing Post-Employment Restraints

For a restraint clause to be upheld, it must be reasonable in terms of both geographical scope and duration. Courts in States other than NSW will not rewrite a contract or its terms to make it enforceable. Instead, if a restraint clause is deemed too broad, courts will simply strike it out and there will be nothing left to enforce (the position in NSW is not as severe). This is why step ladder clauses are commonly used to provide alternative restraint periods or geographic scopes in case part of the clause is found to be unenforceable.

When seeking to enforce a restraint clause, employers should focus on the following key factors

• There must be clear evidence of a breach of the restraint clause. 
• Employers should request undertakings from former employees to ensure compliance with the restraint clause, provided there is evidence of a breach. 
• If a breach is suspected and there is strong supporting evidence, court action should be pursued urgently. Delay can be fatal.
• Employers must provide cogent and probative evidence when alleging breaches related to confidential information.

By carefully drafting post-employment restraint clauses and ensuring that there is probative evidence, employers are in a far better position to enforce post-employment restraints. 

Now is a good time to review what your existing clauses are and take action to remedy any gaps you identify.

If you believe a breach has occurred, get in touch with the team at Australian Business Lawyers & Advisors or call the Workplace Advice Line on 13 29 59.