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Restraint of trade in employment contracts in Victoria – Contract of Employment



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Our employment lawyers show how restraints of trade work in
employment contracts in Victoria.

A restraint of trade clause is a critical tool in agreements to
restrain a party from certain conduct. It is also a common clause
used in employment contracts and agreements.

The enforceability of restraint of trade clauses in Victoria is
not straightforward and depends on a few factors. Getting advice is
essential for both employees and employers given their
complexity.

Whilst, restraint of trade clauses can be applied to many
agreements, this article focusses on their use and effectiveness in
employment agreements in Victoria.

The Victorian approach to Restraint of Trade Clauses

It is the starting position in Victoria to regard restraint
clauses as void and contrary to public policy. This, however, does
not necessarily mean that they will be void and unenforceable in
every situation.

A former employer, being the ‘enforcing party’) will
have to establish that the restraint is reasonable to successfully
rebut the legal presumption.

It is then up to the enforcing party to persuade the court that
enforcement would be against public interest.

When is a restraint reasonable?

Whether a restraint clause is reasonable will depend on a
trifecta of interconnected factors including whether the interest
to be protected:

  • is a legitimate business interest:

  • clarity of expression; and

  • the scope of the restraint itself.

Is it a legitimate business interest?

Legitimate business interests warranting protection which have
been recognised by the courts include:

  • preserving customer, client and trade connections;

  • preserving goodwill; and

  • protecting confidential information and trade secrets.

It is important to note that preventing competition from a
former employee is NOT a legitimate interest.

Clarity of Expression – Is the restraint set out clearly?

Clarity of expression can either make or break a restraint, so
where there is ambiguity, this will be construed in favour of the
employee unless the clause can be severed. Examples of ambiguity
include the use of language rendering a restraint clause too wide
so that it does more than is necessary to protect a business’
legitimate interest.

What is the scope of the restraint?

A restraint must be no greater in scope than what is reasonably
necessary to protect a legitimate business interest. Scope in this
sense includes the geographical restraint area as well as the
duration of the restraint. If a restraint is too long in duration
or too broad geographically then it could be invalid. However,
cascading clauses are quite effective at navigating this situation
so that courts would likely strike out the invalid
period/geographical areas and enforce the valid clause.

Is a restraint of trade enforceable?

Provided that the enforcing party establishes a legitimate
business interest to be protected, and the clauses are concisely
drafted, the restraint is more likely to be enforced in
Victoria.

For employers and employees this can be a vexing question that
needs to be resolved by obtaining legal advice.

Speak to an experienced Melbourne employment lawyer to ensure you get
the right advice on how to protect yourself or your business.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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