What is a Restraint of Trade?
A 'restraint of trade' is a clause in an employment agreement that generally prevents a former employee from:
- starting their own competing business; or
- working for a competitor,
for a defined period of time after the employee's employment has ended (i.e 6 months), and possibly within a defined area (i.e within a 5km radius of the employer's business location).
The law automatically protects an employer's confidential information from being misused by an employee whilst the employee is employed with the employer, even if there is no written employment agreement in place. However, being able to prove that an employee has misused such information after the employment has ended is far more difficult.
Given this, a restraint of trade clause will generally be used so that an employer does not have to prove that a former employee has misused its confidential information - the employer will only have to prove that the former employee has breached the restraint of trade clause by starting their own business or working for a competitor within the restraint time and area. Such a clause is designed to continue the protection of the employer's business and confidential information after the employment has been terminated.
It should be noted that such a clause may be invalid if it is unreasonable and goes beyond what is necessary to protect the legitimate interests of the employer's business.
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