This chapter outlines different types of restraint of trade clauses in an employment contract and how to ensure they will be legally enforced.
What is a restraint of trade clause?
Definition: Restraint of Trade Clause
A restraint of trade clause is a clause in a contract that restricts a person from engaging in economic activity beyond the term of the contract.
A restraint of trade clause is only enforceable if the court is satisfied that it offers reasonable protection for a legitimate interest of your business, and is not contrary to public interest.
Caution: The restraint of trade principle clashes with the legal concept that when two parties freely enter into a contract, they should be bound by it. Additionally, courts typically frown on restraint of trade clauses because they can restrict the ex-employee from earning a livelihood. Due to this conflict, the restraint of trade principle has been watered down so that some restraint of trade clauses can only be enforced in certain circumstances.
Important: The Competition and Consumer Act 2010 (Cth) prohibits a corporation from making provision in a contract that has the likely effect of substantially lessening competition. However, this prohibition does not apply to restraints of trade in employment contracts or contractor agreements.