By Mark Cox, Director and Joanna Knoth, Senior Associate
Employees are spending less and less time working in the same organisation. As employees move around different organisations in the same industry, businesses need to take necessary steps to protect their commercial interests with confidentiality and restraint clauses in employment contracts.
Restraints of trade can also be called non-competition or non-solicitation clauses. They generally involve preventing employees and contractors from competing with a business during and after their employment.
Why Restraint of Trade Clauses Are Important
Many employees are privy to sensitive and confidential business information. This includes client information, trade secrets and intellectual property. A business’s viability relies on its ability to provide a unique service that generates revenue using particular procedures and processes.
Protecting that knowledge and methodology is vital to protecting your business’s viability. Some of the things restraint of trade clauses can help protect include:
- Soliciting and poaching current and former clients and customers
- Soliciting and poaching current and former employees, contractors and other affiliates
- Disclosure of trade secrets and other confidential information
- General activity that is in direct competition with the business’s services or products
Enforcing Restraint of Trade Clauses
The law surrounding restraints is complex. It should not be assumed that they are easily enforced, even when restraint clauses are included in signed contracts. It’s important to carefully frame them in the contract in order for them to be effective. An experienced workplace and employment lawyer can help you get it right by providing advice and drafting your restraint of trade clauses.
Restraint of trade clauses will only be enforceable if they are necessary to protect legitimate business interests. They cannot restrict the liberty of someone to earn a living and exercise their chosen trade any more than is strictly necessary to protect legitimate interests. Whether a restraint of trade clause is reasonable is determined by the facts of a particular case, including:
- The size and nature of the industry
- The nature of the employee’s role
- The extent to which the employee was in regular contact with customers
- The extent to which the employee had access to the employers commercial confidential information
- The geographic scope and temporal length of the restraint
- The effect of the restraint on the employee’s ability to earn a wage
- Bargaining power of the contracting parties
- Future probabilities that could have been foreseen by the employer
- The effect on the employer’s business without the restraint
Most restraint of trade clauses are deemed unreasonable where they are excessive in scope, geographic reach and time length. When drafting a restraint of trade clause, these factors should be limited as much as possible to the particular circumstances of the employee in their employment role. Protecting legitimate business interests with a restraint of trade clause does not extend to simply preventing potential competition. It should specifically outline what needs to be protected for the sustainability of a business, whether it is client, employee or supplier connections or confidential information.
Contact our team of employment lawyers if you need advice or a restraint of trade clause drafted in your employment contract. We have extensive experience in dealing with restraints and broader HR legal issues and can offer a tailored service that meets your needs.