Half of all workers in Australia have some kind of restraint in their contract

Half of all workers in Australia have some kind of restraint in their contract, and as many as 1 in 5 have a non-compete clause (according to a 2023 survey)

So what’s the difference, and why does it matter?

A non-compete clause is a condition in an employment contract that tries to prevent or restrict an employee from moving to a competitor. It’s usually specified to a period of time (like 6 months from the end of employment) and an area (like 10km from the place of work).

A restraint on the other hand might be a bit broader, but a common one to see is a non-solicitation clause – trying to stop an employee from taking clients with them to a new job.

These matter a whole lot! They matter enough that the Australian Government’s Competition Taskforce is in the middle of a review of non-compete clauses and other restraints.

And while some countries already regulate non-compete clauses (like Germany) or are proposing reforms that restrict or ban them (like the United States), in Australia the common law position is still that they are valid if they protect an employer’s “legitimate business interests”.

It is up to the party who has the benefit of the restraint (usually the former employer) to prove that it is enforceable. That means, they have to prove that the restraint does not go beyond protecting their legitimate business interests at the time of entry into restraint.

It is critical for a business (particularly professional services businesses) to review their restraints of trade regularly, especially as the Competition Taskforce may propose reforms to the government. Is this something you will need to rely on? Does it only go so far as to protect legitimate business interests?

A recent case in the Victorian Supreme Court (2nd Chapter Pty Ltd & Ors v Sealy & Ors) held that a five-year minimum restraint in a non-competition agreement was unenforceable – but each case has different circumstances!

It is also important for employees to review their contracts carefully before signing. Are you subject to a restraint of trade or non-compete clause? Contracts live and die by their words – the way your employer has drafted it may make all the difference if you decide to move on!

We’ll be waiting for the Competition Taskforce review to be released later this year with a keen eye – you should too.

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Tagged as:

• employment law