New Year resolution for a new job? Beware the fine print that is restraint of trade.

04/02/2019

When most people are negotiating the terms and conditions of a new job, the main priorities are usually the pay, the location, the people and the opportunities for progression. And yes, for some whether there are bean bags and zen zones.

Very few people would start a new job thinking about what leaving that same job would look like and fair enough too.

However, think about it in plain terms, like heading for a night out and not thinking about how you will get home. The result can be expensive, dangerous and leave you in the lurch.

Why?

More and more we are seeing buried in employment contracts headings such as ‘post-employment restrictions’, ‘restraint of trade’ or ‘post-employment warmaties’.

Rest assured, there is nothing warm about any of these clauses. And, chances are if you work in a professional industry, whether it is IT, marketing, or even the law you will have one of these buried in your contract somewhere.

Most people are content to check the cash component, leave days, superannuation contribution and then probably skim over the rest of an employment contract, but these clauses are an increasing source of dispute between employers and employees and it is vital that you pay as much attention to the fine print as to the new salary.

So what is a restraint of trade? Put simply, it means if you leave your current employer, you can’t work for a competitor or in competition with your former boss for a certain period of time.

Ultimately, how enforceable this is, is a matter for the Courts.

A rule of thumb is that the more senior you are in an organisation, a restraint of some sort is more likely to be enforceable against you. This is because of the simple fact that senior employees are likely exposed to the inner working of a particular company and this inevitably means access to the company strategies and other sensitive corporate information.

For example, a senior customer relationship manager is likely to develop special insights into the workings of customers and their particular needs (and obviously has the inside running on their own employer). A restraint of trade acts to stop that person using the special knowledge gained for a fixed period of time post-employment.

Gordon Legal has increasingly seen employers who are willing to try to enforce these types of clauses. This might mean that an employer will try to stop you working for a competitor for a period of time or ask that you not be employed (or work as a contractor) in a particular industry. Our experience suggests that employers have become more aggressive at using these clauses and it is for that reason that we always stress to new employees to take into account the potential that these clauses could be enforced when negotiating at the start of the relationship.

A note on New South Wales:

New South Wales has a different regime when it comes to the enforcement of restraints of trade.

In NSW, a Court determines whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed. Next, the Court determines whether the restraint, so far as it applies to that breach, is contrary to public policy. If it is not, the restraint is valid.

A restraint in NSW can be easier to enforce as a result of the Restraints of Trade Act.

Your best bet is to get advice before you sign your contract – a lawyer may be able to help you negotiate or remove such a clause. And if you are in a job and already bound by such a clause, get advice before you leave.

At Gordon Legal, our expert lawyers have a proven track record helping employees work through the minefield that these types of clauses can create.

Remember, getting expert advice early can save a whole of stress, both financial and emotional.