What does 'restraint of trade' mean?

Published 27 Apr 2018

Every business has its trade secrets. Whether it's confidential information like client contact details or processes around how a product is manufactured, this is the type of information that employers would rather stay inside their four walls.

However, when an employee decides to leave, taking everything they've learnt with them, how can you be assured they don't use this information against your business? The best way to deal with this situation is to introduce a 'restraint of trade' clause into their employment agreement. Here's everything you need to know about this.

What does a restraint of trade actually include?

As it's impossible to prevent former employees sharing information about your business with others, a restraint of trade acts as something to limit potential damage. Often limited to a specific period of time and geographical area, there are two main types of restraint of trade clauses - non-competition and non-solicitation.

A non-competition clause prevents a former employee from working in a similar field to your business. A good example of this would be in a cloud computing businesses where someone could take ideas and processes from your enterprise and use it to boost the competition.

The other type of restraint of trade clause is non-solicitation. While an individual will be allowed to work in the industry, they won't be able to contact former clients or business partners to reestablish corporate ties. This is perfect for agency work when individuals may attempt to work with clients once they've finished working for your business. This clause, therefore, puts your business interests first.

Why should businesses introduce a restraint of trade clause?

In short, it comes down to whether your business has interests that should be protected. Regardless of whether this is trade connections, secret processes or confidential information, if you believe another business using or knowing your information could have a negative impact on your operations, it's best to implement one. 

As this is a complex part of employment law, it's recommended to talk to an expert commercial lawyer. These professionals can ensure that the restraint of trade clause is detailed correctly in contracts and if it needs to be enforced can follow up on your behalf.

A restraint of trade clause must also be fair and reasonable for employees - highlighting the value of discussing the wording with a commercial lawyer. To learn more or to get started, feel free to reach out to our team today.

Please call us on 02 8833 2000 to speak with a lawyer

I remain extremely grateful for Maloufs legal representation related to my financial management of the estate of my brother and for your continuing help and advice in this matter. As an aside, I always recommend Maloufs to my friends and family members who are seeking the best legal representation - only last week, I strongly advised a close family friend that their best interests would be served by arranging an appointment at your Parramatta offices.
John of Parramatta NSW

Parramatta Office:

Level 5/146 Marsden Street
Parramatta NSW 2124

PO Box 945
Parramatta NSW 2124

Phone: 02 8833 2000
Fax: 02 9687 3697