How to enforce a restraint of trade clause

Published 14 Feb 2019

It's common practice to include restraint of trade clauses in your employment contracts to protect your interests. Unfortunately, these aren't always respected by ex-employees who choose to ignore them. What can you do to make them comply?

What is a restraint of trade clause?

Restraint of trade clauses are added into contracts to protect the business interests of employers should their employees move on. They vary depending on the business in question, but generally outline that the employee can't:

  • Use the business's trade secrets or confidential information.
  • Compete against the business.
  • Solicit clients, customers or employees from the business.

In order for a restraint clause to be held up in a court of law, it must be reasonably necessary to protect your legitimate business interests. Just what's considered reasonable is judged by the Court using the Competition and Consumer Act 2010 (Cth) and the Restraints of Trade Act 1976 (NSW). They'll also take in to consideration other factors such as the negotiating strength of each party, the remuneration (if any) the employee received for agreeing and the time the restraint is set to be binding for.

How can a restraint of trade clause be enforced if an ex-employee is breaching it?

There are a few steps you should follow if you think a restraint of trade clause is being breached.

1. Send the offending party a letter

The first step is usually to send the infringing party a letter informing them that they're operating in breach of contract, and request that they stop. Often this can be enough for the offending party to comply.

2. Seek an injunction

Should the offending party not respond to your letter(s), and/or continue infringing your contract, the next step can be to seek an injunction. This is an application to the Court to have a legal order handed to the offending party to stop the infringing activity. In some cases, damages for lost income due to the contract breach may also awarded (what you would have earned from a client had they not been solicited, for example).

Before seeking an injunction, you should think about whether it's worth it commercially - after all, there are costs involved and no guarantee the Court will approve your injunction. Seeking expert legal advice is the best way to reach a positive outcome when dealing with violations of restraint of trade clauses. To learn more about how the team at Malouf Solicitors can help, get in touch today.

Please call us on 02 8833 2000 to speak with a lawyer

I would just like to say thank you to Anthony who assisted my son in his matter. He is a first home buyer and was pressured into signing a contract prior to obtaining legal advice. The contract was certainly was not the normal straight forward type. To be able to obtain the help and assistance he did from Anthony and rescind the offer the next day, was wonderful. We were able to have a stress free Christmas. I am unable to thank him enough for this. My son and our family will be contacting Anthony when we find the next property.
Kim of Sydney

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