Restraint of trade clauses are common in employment contracts, limiting employees’ ability to work with competitors or start similar businesses after leaving a job.
However, not all restraint clauses are legally enforceable. If you believe a clause in your contract is unreasonable, you can challenge it. Here’s what you need to know from an employee’s perspective.
What Makes a Restraint of Trade Clause Unreasonable?
Restraint of trade clauses must strike a balance between protecting the employer’s legitimate business interests and not unreasonably restricting an employee’s right to earn a living. Courts in Australia typically assess the following factors when determining if a clause is unreasonable:
- Geographic Scope
Is the restraint limited to a specific area, or is it overly broad? A restraint that covers an unnecessarily wide region may be deemed unreasonable.
- Duration
How long does the restraint last? A clause that restricts you from working in your industry for an excessive period may not hold up in court.
- Nature of the Restriction
Does the clause go beyond what is necessary to protect the employer’s business interests, such as protecting confidential information or client relationships? Clauses that are overly strict may be invalid.
- Impact on Employment
Courts will also consider the effect of the clause on your ability to find similar employment. If it severely limits your job opportunities, it may not be enforceable.
Legal Steps to Challenge an Unreasonable Clause
- Seek Legal Advice
Consult an employment lawyer to assess the fairness of the clause. A lawyer can help you understand the legal requirements and determine if the clause is enforceable.
- Negotiate with Your Employer
If a clause seems unfair, consider negotiating with your employer before you sign the contract. If you’re already in a dispute, mediation may help resolve the issue without going to court.
- Court Proceedings
If negotiations fail, you may need to challenge the clause in court. The court will evaluate the clause’s reasonableness based on your specific circumstances and the context of your employment.
Consequences of Breaching a Restraint Clause
Breaching a restraint of trade clause can lead to serious consequences, including:
- Injunctions
Your employer may seek an injunction to prevent you from working with a competitor or using confidential information.
- Damages
You may be required to compensate your employer if they can prove that your breach caused financial harm.
- Termination
Breaching a restraint clause could also result in termination or other disciplinary actions.
Action
To avoid disputes over restraint of trade clauses, consider:
- Negotiating Terms
If a clause seems too broad, discuss it with your employer before signing the contract.
- Seeking Clarification
Ensure you fully understand what the clause covers, including any restrictions on the geographic scope or duration.
- Maintaining Records
Keep detailed records of any agreements or modifications to your contract related to the restraint clause.
Cases
Buckley v Tutty (1971) 125 CLR 353
- The High Court established that restraint of trade clauses must be reasonable and necessary to protect legitimate business interests, rather than being excessively broad or restrictive. This case has influenced subsequent decisions by reinforcing the importance of balancing contractual freedom with public policy considerations that prevent monopolistic practices. Courts now reference Buckley v Tutty when assessing the validity of restraint clauses, ensuring they do not unjustly hinder competition or an individual’s right to work.
Seeking Advice
If you are facing a dispute over a restraint of trade clause, Fox Piper can assist in assessing the fairness of the clause and providing guidance on how to challenge it. Our experienced legal team is ready to support you in negotiating fair terms or representing your interests in court if necessary.
Conclusion
Challenging an unreasonable restraint of trade clause is crucial to ensuring you have fair opportunities in your career. If you believe a clause is overly restrictive, seek legal advice to understand your options. Proper guidance can help you protect your right to earn a living without unreasonable limitations.
