Much damage can be done to a business where an executive or senior manager resigns taking valuable customer information and confidential information. Restraint of trade clauses, or post-employment restraints, play a crucial role in protecting the legitimate interests of the employer.
In order to protect business interest’s employment contracts should contain protections which operate after the employment ends.
Restraints of trade are included in employment contracts to protect an employer’s trade secrets, confidential information, customer connections and staff connections by restricting an employee’s activities after they have left employment.
Restraint of trade clauses will be enforceable to the extent that the restraint is reasonably necessary to protect the legitimate business interests of the employer. Whether a restraint is reasonably necessary will depend on the particular clause and the facts of the case.
At common law, post-employment restraints of trade are on the face of it invalid as infringing public policy. A restraint clause in an employment contract will only be enforceable if the restrictions imposed are no more than necessary for the protection of the employer’s legitimate business interests.
Legitimate interests that can be protected include confidential information, customers and staff. It is typical for a restraint clause to prevent an employee from:
- Soliciting the employer’s clients;
- Setting up a competing business with the employer’s business or working in a competitive business; and
- Poaching employees of the business.
Some tips for drafting restraint clauses in employment contracts:
- Make sure the period of restraint is appropriate to the employee’s position and access to confidential information;
- Make sure the prohibited activities to be prevented are similar to the employee’s current activities; and
- Ensure contracts are reviewed regularly and updated to reflect changes in the employee’s role.
Tim Hayter, Principal, Mid West Lawyers
This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.