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Post-Employment Restraints: What You Need to Know
In an employment context, post-employment restraints seek to protect an employer’s business by preventing employees from engaging in a range of competitive activities during, and after, their employment. It is common for the employment contracts of mid to senior level managers and executive employees to include restraint of trade clauses.
The restrictions contained in a restraint of trade clause are usually framed by reference to:
- a geographical area;
- a period of time;
- defined industries, businesses or activities that the employee cannot be involved in; and/or
- classes of people (such as customers, clients or employees) with whom the employee is restricted from dealing.
Are post-employment restraints enforceable?
Restraint of trade clauses will be enforceable provided an employer can show that at the time the restraint was agreed:
- there was a legitimate interest of the employer to protect (for example, its confidential information, stable workforce, customer connections, goodwill or commercial interests); and
- the restraint imposed was no more than reasonably necessary to protect the interest. This will be determined based on the particular factual circumstances including the length and geographical area of the restraint, the nature of the activities restrained, the seniority of the employee and how the contract of employment was terminated.
How are post-employment restraints enforced?
If an employer suspects a former employee is in breach of their post-employment restraints then, prior to commencing litigation, it is common to write to the former employee to demand the former employee cease and desist from any and all activity. In order to comply with this demand, the employer may require the former employee to provide written undertakings to confirm the former employee’s ongoing compliance with the post-employment restraints.
If a former employee continues to act in breach of their post-employment restraints then an employer can seek enforcement of the restraints by applying for an interlocutory injunction (that is, an order to stop the former employee from breaching the restraint of trade clause). Damages may also be available in some cases.
In order to obtain an injunction, the employer must show that:
- there is a “prima facie” case (that is, if the evidence remains as is, there is a probability that the employer will be entitled to the relief sought);
- unless an injunction is granted, the employer will suffer injury for which damages will not be adequate; and
- the balance of convenience favours the granting of relief (that is, the injury which the employer would be likely to suffer if the injunction is refused outweighs the injury which the former employee would suffer if the injunction was granted).
Tips for employers
When employing or promoting an individual to a mid, senior or executive position, employers should consider the inclusion of restraint of trade clauses to protect legitimate business interests.
Restraint of trade clauses should be tailored to an individual employee so that they are reasonable and go no further than necessary to protect the interests of an employer. This will improve the enforceability of a restraint.
Kirryn West James, Director
Other Relevant Resources
2 November 2014