1. Definition of Restrictive Covenants
In Australia, at common law, restraints of trade are against public policy and void, save in particular circumstances where the restriction is reasonable, taking into account the public interest and interests of the parties. A restraint is not reasonable if it goes beyond providing any more than adequate protection for the legitimate interests of the party concerned. An injunction provides the primary remedy for seeking to enforce a restraint of trade. An injunction may restrain the employee from certain action, which may include using particular information of the employer, from contacting clients of the employer or from performing particular work.
Restraints of trade are common clauses found in most senior employee contracts of employment. The courts are quite willing to enforce appropriate restraint of trade clauses, provided those clauses comply with the rules set out in the paragraphs above.
2. Types of Restrictive Covenants
Generally, there are four categories of activities restrained in post-employment restraint clauses:
- Undertaking / carrying on / being engaged in a business similar to the employer’s business;
- Soliciting customers or clients of the employer;
- Soliciting employees of the employer; and
- Using or disclosing confidential information of the employer (Note that courts have upheld significant periods of restraint, where the restraint is specifically designed to protect confidential information rather than protect competition).