A restraint of trade is an employment contract term designed to limit what an employee can do after the employment ends, for example:
- Customer restraint – preventing you from doing work for customers of the employer for a defined period;
- Occupation restraint – locking you out from doing any work at all within defined geographical limits and for a defined period;
- Personnel restraint – preventing you from persuading employees to leave the employer and work for you.
You need to know where you stand as a properly worded restraint can significantly limit your career options.
Not all employment restraints are enforceable, and a court may not enforce an unnecessarily restrictive clause that the employer has no legitimate business interest to impose.
The law of restraints is technical and advice about correct approach is important.
If you receive a letter of demand from a former employer it is essential to act quickly by taking advice before the situation escalates into an expensive and stressful court case that could jeopardise your career if orders are issued against you.
Contact us today for advice about:
- understanding a restraint of trade that is offered to you and negotiating changes to it;
- how to respond to a letter alleging breach of restraint;
- taking action to enforce a suitable restraint.
For longstanding experience and help when you need it, Contact WorkLegal today.
Case Study – Negotiating a Restraint of Trade
Daniela is an up-and-coming accountant and is thrilled when a multi-national accounting firm accepts her employment application. She will have to relocate to take up the job and the company will pay for her relocation costs. She is emailed a lengthy employment agreement which she reads quickly. Daniela shares her good news with a friend over a coffee. Her friend is happy for Daniela but recommends she has the employment contract checked before sending it back.
Her employment lawyer reads the contract carefully and notices that the contract includes a lengthy restraint clause under a heading “Business Protection”. Her lawyer explains the clause places various limitations on what she can do after the employment ends that Daniela should think through before signing up. Daniela has some existing clients that she wants to bring with her to the practice. Her lawyer points out that the restraint does not exclude those clients, and the employer could try to prohibit her from providing services to those clients if the employment ends.
With advice from her lawyer Daniela negotiates the restraint clause to a mutually satisfactory outcome and Daniela is thrilled to start packing to move for her new opportunity.
Case Study – Responding to a Restraint of Trade Demand
Dan is a senior consulting engineer who was employed as a regional manager for a national engineering firm. In the position Dan has managed the contracts for most of the firm’s major clients in the region. Dan has been headhunted by a competitor that wants to build its footprint in the region. The salary is higher and Dan does not think twice before accepting it.
News travels quickly in the mining services sector and soon Dan receives a letter from his old employer affirming ongoing obligations in his employment contract with them and complaining about a recent visit he made to one of their largest clients that has since transferred its business to Dan’s new employer. The letter threatens an injunction application for breach of a restraint clause in the employment contract by which Dan is prevented from approaching their customers for a period of 6 months. The letter also claims against Dan personally an account of any profits from the client’s work they may lose.
Dan needs urgent legal advice about the enforceability of the threatened restraint and how he should respond.
It turns out that there are serious flaws in the restraint clause, including that the restraint area defined in the employment contract is ambiguous and the definition of “employer clients” is unnecessarily wide. With a carefully worded response the threatened legal action is averted. Dan has had a close call. He would have saved himself a huge amount of stress had he taken advice much earlier about the risks arising from ongoing restraint obligations.
Case Study – Setting up a Competing Business
Dr Yang was a general practitioner who was engaged as an independent contractor by Epichealth at a medical practice in Melbourne. His contractor agreement included a clause restraining him from providing medical services to any other person within a distance of 25, 10 or 5km from the practice, within 12, 6 or 3 months after the termination of his contract. In late August 2015 Dr Yang stopped providing medical services at Epicentre’s practice, about a month before the period of his termination notice to Epichealth was due to end. It was revealed that from 1 August 2015 a rival medical practice had commenced business. The rival practice was owned by a company of which Dr Yang was a director. Epichealth successfully brought an interlocutory injunction in the Supreme Court of Victoria, and an order was made restraining Dr Yang from engaging in a rival medical practice for a period of 4 months after he ceased providing services for Epichealth.
Epichealth Pty Ltd v Yang  VSC 516
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