A Legal Guide for Employers and Business Owners

All business owners invest time, trust, and money into their team. So, it’s frustrating, and at times even damaging, when a former employee walks out the door and starts working for a competitor, poaching your clients, or using your confidential information to get a head start in that venture.

That’s when restraint of trade clauses can help, provided they are properly drafted.

In this article, we break down what a restraint of trade clause is, what happens when an employee breaches a restraint clause, what you can do about it, and how to protect your business moving forward.

What Is a Restraint of Trade Clause?

A restraint of trade clause is a provision of an employment contract that limits what an employee can do after leaving your business, and usually includes:

  • Non-compete obligations, to stop the former employee from joining or starting a competing business near your business, for a specific time after they leave your business;
  • Non-solicitation obligations, to stop them from trying to poach your customers or staff;
  • Confidentiality obligations, to stop them from using your business’ confidential information elsewhere.

The purpose of these restraint of trade clauses is to protect your business, not punish former employees, and this is exactly how the law looks at them.

Are Restraint of Trade Clauses Enforceable?

The short answer is yes, but only if the Courts find the clause to be reasonable. Courts don’t like contracts that unfairly stop someone from earning a living, so for such clauses to be enforceable, they must:

  1. Protect a real business interest (like your client list or trade secrets)
  2. Be reasonable in time, location, and scope and
  3. Not be broader than necessary

✅ Restraint of Trade Clause Example 1: A 6-month restriction limited to Canberra may be considered reasonable.
❌ Restraint of Trade Clause Example2: A 3-year nationwide ban is likely to be unenforceable.

What If an Employee Breaches Their Obligations Under a Restraint of Trade Clause?

If your former employee is now working for a direct competitor or contacting your customers, you may choose to do as follows:

  1. Send a Cease and Desist Letter – this is a formal letter telling the former employee (and sometimes their new employer) to stop the activity that’s in breach of their contract with you.
  2. Apply for an Injunction – This is a court order that can force former employees to stop breaching your agreement. However, please note that time is critical here and waiting too long can make it harder to obtain this legal remedy.
  3. Seek Damages – If your former employee’s actions caused you financial loss, such as lost clients or revenue, you might be able to sue for compensation. But you’ll need to provide appropriate evidence during your court case, so it’s best to keep good records.
  4. Go After the New Employer (if needed) – If the new employer encouraged the above breach, or is using your confidential information, you may have legal grounds to pursue them too.

Can the Employee Fight Back?

Yes, and they might, often relying on the following common defences:

  • The restraint of trade clause is too broad or unreasonable – for example, its geographical scope or time are too wide or long
  • They weren’t given a fair chance to understand or negotiate it
  • You breached their contract first (e.g., wrongful termination, unfair dismissal claim)
  • The clause unfairly stops them from making a living (especially where the clause is too wide)

That’s why it’s critical to ensure the drafting of a restraint of trade clause is right from the beginning. Contact MV Law’s Employment Lawyers Canberra for advice.

Practical tips to protect your business

  1. Tailor Restraint Clauses to the Role – Don’t copy and paste a generic clause from the internet. Make sure it suits the specific role and business needs.
  2. Review Contracts Regularly – Especially when staff are promoted or change roles. A clause that worked for a junior role might not hold up for a senior one, and vice versa.
  3. Act Fast If There’s a Breach – If you delay, it might look like the breach isn’t serious—or worse, you might miss the window to act legally.
  4. Keep Good Records -If you suffer losses (like a client leaving), keep documentation. You’ll need it if you want to claim damages.
  5. Get Legal Advice Early – If you’re unsure whether your contracts are up to scratch, or if you’re dealing with a possible breach, don’t wait until it’s too late. A quick and early conversation with a lawyer can save you a lot of headaches and money down the line.

Need Help Protecting Your Business ?

If you believe a former employee has breached a restraint of trade clause, or you want to make sure your contracts are enforceable, we can help.

MV Law’s Employment Lawyers in Canberra protect the interests of both employers and employees. Our Business Lawyers in ACT and NSW can help draft, review, and enforce restraint of trade clauses to safeguard your business and intellectual property.

📞 Contact MV Law today for legal advice.

MV Law Canberra

Ph: (02) 6279 4444
Email: info@mvlaw.com.au