Employment law myth No.7: “There’s no point having a restraint of trade in an employment contract”
It is a common misconception that courts don’t enforce “restraints of trade” (those clauses in employment contracts preventing former employees from competing with their previous workplace, soliciting their clients and/or poaching staff).
In truth, courts will and frequently do, prevent former employees from acting in breach of their contractual restraints. That is not to say that employers have “carte blanche” in this area: a court will not enforce a restraint if it considers that there is not a legitimate business interest to protect. It will also be reluctant to do so where the effect of enforcing the restraint will mean that the employee cannot perform any form of meaningful work. Sometimes the area of restraint is considered too wide, sometimes the length of restraint is too long. But in many cases a court will enforce even lengthy and wide-reaching restraints. Earlier this year, a WA court considered a 10 year-long restraint of trade to be reasonable at an initial “interlocutory hearing” (ie a hearing considering interim remedies before deciding on the final result).
Although this case turned on its own facts (the employee was previously the owner of the business and had received a large payment in lieu of agreeing not to compete) it is still a useful illustration that courts can be willing to enforce even long and wide-ranging terms.