Australian companies sometimes use restraint of trade clauses to protect their business interests once an employee leaves the job. These clauses are mostly found in employment contracts designed for managerial and professional employees. However, while including restraint of trade clauses, employers should clearly know their legal restrictions.

If you are the employer, you can hire a non-compete agreement lawyer for essential legal advice. This blog discusses the important features of a non-compete clause, including its period and geographic scope.

What Is A Non-Compete Agreement?

A non-compete agreement is used to prevent a leaving employee from working under a competitor company for a specific period. As an employer, you can also include other restrictions imposed on soliciting your customers, staff, or clients and those imposed on using your company’s confidential information.

All should be aware that a court can only uphold a restraint clause if it is found to be reasonable. For example, if a clause illegally interferes with a worker’s right, the court will not enforce it.

What Interests Does A Non-Compete Clause Protect?

Post-employment restraints will be considered enforceable and invalid unless they are proved to be protecting commercial interests. Interests usually protected by these clauses include confidential information or trade secrets of the company, the interests of the business clients, and the company’s staff.

However, one should note that the trade secrets and confidential information will be entirely different from the usual expertise to fulfill their job responsibilities.

A restraint clause cannot protect the employer against the usual competition processes occurring in a specific market or industry. Courts do not consider broad restrictions on competition to be reasonable and thus, do not enforce them.

When analyzing whether an employment contract with restrictive clauses is reasonable and valid, the Australian courts usually consider several factors, including the duration of the clauses, the specific geographic area where they apply, and the employee activities controlled by the restraints.

If any restraint clause is unreasonable, the courts have the right to sever a restraint clause. Severance is generally possible if the clause includes a series of overlapping restraints, called cascading or step clauses.

What Are The Length And Geographic Scope For A Non-Compete Agreement To Be Reasonable?

If you want your non-compete clause to be enforced by the courts, it should be reasonable in terms of geographic scope and duration and in its effort to protect the employer’s interest. However, you should also remember that restraint should not be more restrictive than necessary to protect the legitimate business interests of an employer.

In addition, the clause should also identify the relevant risk associated with it. This is the reason the clause should be tailored to the role of the employer.

Duration of the clause

When an employee is leaving the company, you have to set a time duration in which the departing employee cannot use your company’s confidential information or trade secrets. You must keep in mind that the risk associated with the former employee using the relationships they have with the company’s clients and important knowledge may be reduced by recruiting a replacement to develop the same goodwill.

The longer the length of the restraint clause, the less will be the chance of being considered reasonable. Usually, a restraint clause is upheld by an Australian court for the duration of 3 to 12 months.

Geographic scope

If the employee is responsible for covering a specific geographic location in Australia, restricting this region’s activity will be considered reasonable. However, it may not apply to a larger area. The larger the area the clause covers, the less will be the chance of being enforceable.

There are some top-rated employment lawyers in Perth who can help you with important advice.

What Are The Other Factors That Play An Important Role For A Non-Compete Agreement To Be Enforceable?

In addition to geographic scope and duration, there are other factors too that you need to consider to make your non-compete clause reasonable.

Specific conditions

If there are any specific circumstances, the clause may or may not apply. For example, if the reason behind the departure of the employee is the redundancy of the position, the clause will not apply.

The employee’s role may also change since the signing of the contract. In that case, if no updates have been made on the agreements by the employer, the clause will not apply.

Mode

Whether the clause covers channel sales partners, online businesses, or retail outlets, it should also be considered while including the clause.

Definition of competitor

As an employer, you have to be very specific about the definition of a competitor, which may be directed to specific competitors or defined in broad terms. If you want the chance to be enforced by the court, a more specific definition should be considered.

Jurisdiction under which the restraint to be enforced

There will be differences in restraining clause law for different territories and states in Australia, but these differences will be less likely to cause any significant difference.

International employers may find that if an agreement is under an overseas jurisdiction, the court in Australia may choose to apply the laws of the specific state or territory where the business is based. Alternatively, overseas law can also be applied.

Validity of restraint clauses while making redundancies

Suppose the redundancy occurs due to the closure of a specific department of a business. In that case, if the departed employee solicits clients at a new business considered a competitor of their former company, they will not be deemed to cause any damage to the original employer.

Where can you find lawyers for your job?

For references, you can contact various law firms where you can find some of the best employment lawyers in Perth. The procedure must be completed with much caution, and that is why experts recommend hiring a legal professional. However, before choosing an individual, you must have a look at their profiles.

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