Beware the broad restraint

First published in the August 2014 edition of Bendigo Enterprise. 

It is trite law that a restraint of trade clause (“restraint”) is prima facie void as contrary to public policy and Courts have historically been reticent to uphold restraints in employment contracts because they discourage competition and prevent employees practicing their chosen profession.

The utility of restraints has also been impacted by the January 2011 overhaul of the Competition and Consumer Act 2010. However, a properly considered and crafted restraint clause can still be of invaluable to businesses of all sizes.

In an employment law context, a ROT clause is a provision in an employment agreement that limits the employee, for a specified period of time after employment has ended and within a specified area, from working for a competing business or “poaching” the former employer’s staff, clients or customers.

Without the protection of a ROT clause, businesses risk losing their clients, customers when one of their employees sets up on their own or is head-hunted by a competitor. 

Too often, however, businesses try to cast the net too broadly or fail to re-examine their ROT clauses until it is too late and an employee has walked with their business.

A ROT clause will only be enforceable if it is reasonable by reference to the parties and to the public and does not go any further than is necessary to protect the legitimate interests of the employer’s business .

Mere protection against competition will not constitute a “legitimate interest” . Accordingly, ROT clauses must be specifically drafted for the particular employee concerned by reference to their position within the business.