Post-employment restraint clauses – often called ‘restraint of trade’ or ‘non-compete’ clauses – are common in contracts for senior staff, salespeople and employees with access to confidential information or key client relationships. 

Used properly, they can help protect legitimate business interests after an employee leaves.

What is a post-employment restraint clause?

A post-employment restraint clause is a contractual term that seeks to limit what an employee can do after their employment ends.

Broadly, these provisions aim to stop a departing employee from using the business’s confidential information, trade connections or goodwill in a way that harms the employer – for example, by immediately joining a direct competitor or poaching key clients.

Common types of restraint include:
•    non-compete restraints, which restrict working for a competitor or starting a competing business
•    non-solicitation restraints, which restrict approaching or soliciting the employer’s clients, customers, suppliers or employees.

What can a restraint clause restrict?

Restraints generally operate across three dimensions: type of activity (eg, working for a competitor, operating a competing business or soliciting or dealing with clients, customers, suppliers or staff), geographic area and duration of time.

Are restraint clauses automatically enforceable? 

No. In Australia, restraint of trade clauses are not automatically enforceable just because they’re in a contract. 

To rely on them, an employer would usually need to take legal action and prove to a court that the restraint is no more than reasonably necessary to protect a legitimate business interest (eg, confidential information, client relationships or goodwill).

If the clause is drafted too broadly – such as stopping an employee from working anywhere in the industry for an extended period – it is unlikely to be enforced.

What makes a restraint ‘reasonable’? 

Whether a restraint is reasonable depends on the specific facts, including: 

The employee’s role and seniority

A broader restraint might be reasonable for a senior executive or key salesperson than for a junior or administrative employee.

Access to confidential information

Employees having access to strategic plans, pricing models or sensitive client information may justify a stronger restraint.

The employer’s business and market

For a local business, it may be that only a narrow geographic restraint is justified, while a broader restraint may be justified for a national business.

Overall, the courts will balance the employer’s interest in protection against the employee’s right to earn a living.

Cascading restraint clauses (outside New South Wales)

To improve enforceability, many contracts use cascading restraints. These set out multiple combinations of time periods and geographic areas, for example:
•    a restraint period of 12 months, six months or three months
•    a restraint area of 10 kilometres, five kilometres or two kilometres.

This structure effectively gives the court several options: if the broader restraint is found to be unreasonable, it can instead enforce a shorter period or smaller area, increasing the likelihood that at least one version of the restraint will be considered reasonable.

This approach is particularly important outside New South Wales, where courts cannot always ‘fix’ an unreasonable restraint. 

If 12 months Australia-wide is too broad, for example, a court may still enforce six months within a defined region.

In New South Wales, the Restraints of Trade Act 1976 (NSW) allows courts to ‘read down’ an otherwise unreasonable restraint to something more reasonable.

Non-solicitation

A non-solicitation clause seeks to prevent a former employee from actively approaching:
•    clients or customers
•    prospective clients they dealt with
•    other employees or contractors.

The aim is to stop the unfair use of relationships developed at the employer’s expense and it’s important to include this explicitly in the contract so there is a clear, written basis to protect those relationships if issues arise after employment ends.

Conclusion

Restraint clauses are not automatically enforceable; they must be reasonable and protect a genuine business interest. 

When creating a restraint clause, think carefully about who you are restraining, what you are restraining them from doing and where and for how long. 

Non-solicitation can be a more realistic and defensible way to protect client relationships than broad non-compete restraints.

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