Restraint of Trade

Restraint of Trade

A restraint of trade clause is generally included in an employment contract to protect the business interests including client information, intellectual property or trade secrets once an employee ceases employment. These clauses may prevent an employee from working in a similar workplace within a certain location, working in a similar workplace for a specific time period or prevent them from opening up a new business of their own within certain parameters including taking clients or other employees.

Legitimate Interest

These clauses are only enforceable if it protects the legitimate interest of your employer. Trade secrets and goodwill may suffice as a legitimate interest. On the other hand, a clause which aims to minimise competition may not be considered to protect a legitimate interest (Stenhouse Australia v Phillips [1974] AC 391).


To be enforceable, an employer must also be able to establish that the restraint clause in a contract was implemented to protect a legitimate interest and that the restraint itself is reasonably necessary to protect that legitimate interest.

Some legitimate interests may include client connections and confidential information.

How can Employers Emforce a Restraint Clause?

If an employer is successful in establishing a restraint of trade clause was implemented to protect a legitimate interest and is reasonable in the circumstances, an employer may be able to obtain an injunction to enforce a restraint of trade by the employee in accordance with the contract. However, this will apply on the facts of the case itself.

If you are seeking legal advice as an employer considering the preparation of an employment contract, seeking advice to take action on restraint of trade clauses or an employee seeking advice on whether a restraint of trade clause may be enforceable then please call Pannu Lawyers on (02) 9920 1787 to discuss your matter with one of our experienced lawyers.

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