Restraint of trade clauses are often poorly drafted and
frequently misunderstood. A significant proportion of restraint
clauses would be unenforceable if tested.
A restraint of trade clause is void by default unless the
employer can demonstrate that it is reasonable to protect the
legitimate business interests of the employer. The court will
consider whether the restraint is such only as to afford a fair
protection to the interests of the employer, and not so large as to
interfere with the interests of the public.
Despite the difficulties inherent with producing an enforceable
restraint of trade clause, employment contracts will often contain
generic clauses that have no specific bearing to the particular
employee in question and are often far too wide. The fact that the
restraint clause is void usually only becomes apparent when an
employee is breaching it, whereupon the employer is told by its
lawyer (or sometimes, by the court) that the clause isn't worth
the paper it's written on.
The recent case of Sportsbet Pty Ltd v Carpanini and Beteasy Pty
Ltd, handed down on 31 March 2014, is illustrative of the
difficulties that are often encountered when trying to enforce a
Sportsbet and Beteasy are online bookmakers, in competition with
one another. Ms Carpanini was employed by Sportsbet from 2009 until
30 March 2014 as a customer service manager. She was scheduled to
commence work on 1 April 2014 with Beteasy, also in a customer
Sportsbet sought an urgent interlocutory injunction to restrain
Ms Carpanini from commencing work with Beteasy. This was not the
final hearing – this hearing was to determine whether Ms
Carpanini was allowed to work at Beteasy while the substantive case
was making its way to trial (which might take months or years). The
Judge needed to decide whether there was a "serious issue to
be tried" and, if there was, whether the balance of
convenience favoured the making of the orders sought.
The clause restrained Ms Carpanini from being involved "in
any capacity and at any time" within 6 months of termination
from Sportsbet with any competing business within Australia. There
was no dispute that, if the restraint clause was enforceable, Ms
Carpanini was going to breach it. She argued however that it was
void, saying that the restraint was too broad and too long, and
that Sportsbet had no legitimate interest that required such a
Sportsbet argued that Ms Carpanini was in possession of
confidential information which, if used as part of her employment
with Beteasy, may cause damage to Sportsbet. In this respect,
Sportsbet pointed to things such as strategies surrounding upcoming
events but was unable to identify any specific detriment that was
likely to be suffered.
The Judge found it was strongly arguable that the restraint
clause was too wide to be enforceable. It would have restrained Ms
Carpanini from taking any job whatsoever in a competing business,
for 6 months, in the whole of Australia. The Judge did not accept
that Ms Carpinini's position was so high within the
organisation, or that she was in possession of such sensitive and
important confidential information, that such a restrictive clause
Consequently, the Judge was not even persuaded that there was a
serious question to be tried and the application for an
interlocutory injunction was therefore dismissed – Ms
Carpanini was allowed to start work with Beteasy. This does not
necessarily mean that, if and when the matter makes it to a full
hearing, the restraint clause will be struck out, but it certainly
does not bode well.
This case should serve as a reminder that restraint of trade
clauses can be extremely valuable in protecting the interests of an
employer, but only if drafted properly. It is simply not good
enough to rely on generic clauses – in all likelihood, they
will be struck out. Employers should consider with respect to each
employee whether a restraint of trade clause is appropriate and, if
so, seek legal advice on how to improve the chances of the clause
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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