Some employment contracts, particularly for key employees,
incorporate restraints on their post employment activities,
generally to prevent them using their knowledge of the
employer's business and customers to that
employer's detriment in a particular area for a period
after they ceased their employment.
Common law position of restraints
At common law, a restraint of trade is contrary to public policy
and void, unless it can be shown that the restraint is, in the
circumstances of the particular case, 'reasonable.' The
onus of showing that a restraint goes no further than is reasonably
necessary to protect the interests of the person in whose favour
the restraint operates, lies on the party seeking to support the
restraint as reasonable.
The test of reasonableness
The test of reasonableness is measured by reference to the
interests of the parties concerned and the interests of the public.
The requirement that the restraint be reasonable in the interests
of the parties means that the restraint must afford 'no
more than adequate protection' to the party in whose
favour it is imposed. In light of this, consideration should be
given to the following points:
An employer is not entitled to protection against mere
An employer is entitled to protection against the use by an
employee of knowledge obtained by him or her of his or her
employer's affairs, and the influence acquired by the employee
over the employer's customers. These are sometimes referred
to as an employer's legitimate protectable interests
A restraint clause will normally be invalid unless it is
necessary to prevent disclosure of trade secrets, or the use of a
connection built up by the employee with the employer's
The employee's skill and knowledge which the employer
is entitled to protection against must be more than simply the
skill and knowledge necessary to equip the employee as a possible
competitor in the trade, but the obtaining of personal knowledge
of, and influence over, the customers of his or her employer, or
such an acquaintance with his or her employer's trade secrets
as would enable him or her to take advantage of his or her
employer's trade connection or utilise information
The validity of a restraint is to be judged as at the time it
was entered into, not the time at which it is breached. Although,
where a restraint, reasonable in the circumstances as at the date
of the contract, can be seen at the date of hearing to be excessive
having regard to the circumstances as they have eventuated, the
court may as a matter of discretion decline to grant injunctive
In determining whether a restraint is reasonable, it is
relevant but not determinative, that the parties have bargained at
arm's length on an equal footing.
So what is 'reasonable' in the eyes of the
A court, in weighing the question of reasonableness, will give
full weight to commercial practices and to the generality of
contracts made freely by parties bargaining on equal terms.
Ultimately, however, whether a restraint clause is reasonable will,
amongst other things, depend upon:
Its geographical coverage, including whether that coverage is
wider than necessary to protect the employer's legitimate
The scope (or breadth) of the activities restrained (i.e.
whether it seeks to restrain the employee from a greater range of
activities than is required for the protection of the
employer's legitimate interests
As to the duration of the
The type of confidential information to which a party had
access, and the time during which such information remains
The time necessary to sever the employee's connection
with the former employer's customers or clients.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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