Restraint of trade clauses are a common tool used by employers to protect their legitimate business interests when an employee leaves. Restraint clauses are typically included in an employee’s employment contract and restrict former employees from working for competitors, soliciting clients and poaching colleagues. 

However, not all employment contracts include restraint of trade clauses with a recent survey suggesting only half of the workforce has a restraint of some kind.  

Because restraints can be difficult to enforce, they are commonly reserved for senior employees. Concerns about deterring potential recruits, a workplace culture of employee mobility, or an oversight when an employment contract is drafted are also reasons why an employee may not have a restraint.   

However, if there is no restraint of trade clause in an employee’s contract, or the restraint is unenforceable, there are still options available to employers to protect their business and workforce stability.  

Look to the contract 

While the employment relationship may have ended, certain terms of an employee’s employment contract can continue to apply, including: 

• confidentiality clauses, as confidential information remains confidential even after employment ceases; 

• intellectual property clauses, which usually provide that intellectual property created during employment belongs to the employer; and 

• non-disparagement clauses, which protect an employer’s reputation by preventing an employee making disparaging comments about the employer during employment and following termination of employment. 

Such clauses may go some way to provide protection to an employer and it can be helpful to remind departing employees of their contractual obligations. 

Look beyond the contract 

Employees also owe their employer common law duties regardless of what is in their written employment contract. These duties have evolved over time and are based on decisions of the courts.  

While an employee is employed, even if they have given notice, they still owe common law duties including loyalty and fidelity, confidentiality and avoiding conflicts of interest. Some common law duties, such as the duty of confidentiality, also extend beyond termination of employment. 

Use notice periods strategically 

A longer notice period is a useful tool to protect an employer against competition and the solicitation of clients and employees. A longer notice period can: 

• keep an employee engaged in work throughout the notice period (where they continue to owe contractual and common law duties to their employer); 

• keep an employee out of the market for the period of the notice period;  

• restrict the ability of an employee to move immediately to a competitor; and 

• provide an employer with adequate time to protect client relationships, hire a replacement and protect their workforce. 

Depending on how a notice period clause is drafted, during the notice period employers may be able to direct an employee to perform amended duties (perhaps limiting access to client relationships or confidential information). 

Send them to the garden 

A garden leave clause is contained in an employee’s employment contract and can be used when an employer has concerns about an employee’s involvement in the business during a period of notice. Garden leave involves an employee remaining an employee, but they are directed not to perform any duties and not to attend the workplace. This has the practical effect of a restraint of trade clause but is distinct since the employee remains an employee and is subject to all of their contractual and legal duties and obligations. 

Consider fixed-term contracts 

Fixed-term contracts, which cannot be terminated prior to the specified end date, are an effective way to retain employees for a set period. These contracts prevent an employee from leaving mid-project and this keeps an employee out of the market for a defined period.  

It’s important to reassess 

Even if an employment contract does not contain a restraint clause, it is important to reassess the need for one over the employment lifecycle. When employees are promoted or their responsibilities evolve, a new contract with appropriate protections should be considered. 

While restraint of trade clauses are the “gold standard” when it comes to protecting business interests, they are not the only option. Employers can use a combination of contractual provisions, common law duties, notice periods, garden leave and fixed-term contracts to safeguard their business.  

Relying on other tools to protect business interests is particularly relevant given the ongoing debate around restricting the use of non-compete restraints. While there are no imminent proposals to restrict the use of non-compete restraints, an Australian Treasury review is considering their impact on businesses, employees and the broader economy.  

Need a quick refresher on restraints? Read everything you need to know here.