A Guide On Post-Employment Restraints

Post-employment restraints, commonly known as ‘restraints of trade’, are clauses embedded within employment agreements that restrict a former employee’s ability to engage in specific competitive activities following the termination of their employment. These restraints are vital tools for employers seeking to protect their legitimate business interests, but their enforceability can be complex and is often contested in court.

At Bentham Sydney Employment Lawyers, we understand the intricacies of post-employment restraints and the legal challenges they present. This article will explore the key types of restraints, their enforceability, and how employers can safeguard their business interests.

Understanding Post-Employment Restraints

Post-employment restraints are designed to prevent former employees from leveraging confidential information, client relationships, or other proprietary knowledge acquired during their employment to the detriment of their former employer. These restraints can be found in various agreements, including employment contracts, business sale agreements, and shareholder agreements. However, in this context, we will focus on restraints of trade in employment contracts.

The most common forms of post-employment restraints include:

1. Non-Competition Clauses: These clauses restrict former employees from working with competitors or establishing their own competing businesses within a specified geographical area and timeframe.

2. Non-Solicitation Clauses: Such clauses prevent former employees from contacting or soliciting the customers, suppliers, or clients of their previous employer.

3. Non-Poaching Clauses: These clauses are aimed at stopping former employees from enticing other employees to leave their employment with the former employer and join a competitor.

The Enforceability of Restraint Clauses

While post-employment restraints can be an effective means of protecting a business, their enforceability is not guaranteed. The general principle in Australian law is that restraint clauses are prima facie unenforceable unless the employer can demonstrate that the restraint is reasonable in protecting their legitimate business interests. Courts are often reluctant to uphold restraints that overly restrict an employee’s ability to earn a living, making it crucial that these clauses are carefully drafted.

At Bentham Sydney Employment Lawyers, we advise employers to consider the following factors when drafting or enforcing restraint clauses:

1. Legitimate Business Interest: The employer must show that the restraint is necessary to protect interests such as confidential information, client relationships, or trade secrets.

2. Reasonableness: The restraint must be reasonable in scope, duration, and geographical area. Courts will assess whether the restraint is no broader than necessary to protect the employer’s legitimate interests.

3. Employee’s Role: The seniority of the employee and their access to confidential information can influence the reasonableness of the restraint. Higher-level employees with greater access to sensitive information may be subject to longer or broader restraints.

Key Cases Highlighting Restraint Enforcement

In King Kong Corporation Pty Ltd v Moses [2022] FCA 1066, the Federal Court granted an interim injunction preventing a former employee from using confidential information. The court’s decision was influenced by the inadequacy of damages as a remedy, highlighting the importance of swift legal action to protect business interests.

Similarly, in McMurchy v Employsure Pty Ltd; Kumaran v Employsure Pty Ltd [2022] NSWCA 201, the NSW Court of Appeal considered the reasonableness of restraint periods for two former employees. The court upheld a nine-month restraint for a senior manager but found a similar restraint for a lower-level employee to be unreasonable. These cases demonstrate that the enforceability of restraints often hinges on the employee’s position and the extent of their access to confidential information.

Best Practices for Employers

To increase the likelihood of a post-employment restraint being upheld by a court, employers should ensure that the clause is meticulously drafted and tailored to the specific circumstances of the employment. Key considerations include:

1. Clarity and Precision: Restraint clauses should be clear, specific, and avoid ambiguity. Broad or vague terms are less likely to be enforced.

2. Tailoring to the Employee: The scope and duration of the restraint should reflect the employee’s role within the organisation and their access to confidential information.
3. Legal Review: Employers should seek legal advice from Bentham Sydney Employment Lawyers during the drafting process, especially when updating restraint clauses for employees who are promoted or take on new roles.

Conclusion

Post-employment restraints are a powerful tool for protecting a business’s legitimate interests, but their enforceability requires careful drafting, consideration of the specific circumstances, and proactive management. At Bentham Sydney Employment Lawyers, we are experts in employment law and can provide the guidance you need to navigate the complexities of post-employment restraints. If you require assistance with drafting, enforcing, or challenging a restraint clause, contact us today for expert legal advice tailored to your needs.