You have just hired your third key employee — someone who will handle client relationships, know your pricing, and sit inside your systems every day. Your offer letter is signed. Now someone sends you a template employment agreement and asks you to fill in the blanks. That moment is the one this article is written for.
An employment contract is the private agreement between you and each employee that sits on top of the legal floor set by the National Employment Standards (NES) under the Fair Work Act 2009 (Cth) and any applicable modern award or enterprise agreement. It cannot take away NES entitlements — but it can, and should, add terms that protect the business you are building. Three of those terms matter most: the confidentiality clause, the restraint of trade clause, and the intellectual property assignment clause. Get them wrong and a departing employee can legally take your clients, your methods, and your content with them.
How the confidentiality clause works
What it does
A confidentiality clause identifies the categories of information your business treats as secret, imposes a duty on the employee not to disclose or misuse that information, and — critically — extends that duty beyond the end of employment. Without it, you are relying entirely on an equitable duty of confidence that exists at common law. That duty does protect genuinely confidential information communicated in circumstances that import an obligation of confidence, but it is uncertain in scope and harder to enforce than a clear written term.
A well-drafted clause is precise about what counts as confidential. Vague language ("all information relating to the business") tends to be unenforceable because courts read confidentiality obligations narrowly. The clause should list categories — for example:
- pricing structures and fee schedules
- client lists, contact details and project histories
- supplier terms and cost data
- proprietary systems, processes and methodologies
- business plans and product roadmaps
Carve out general know-how
The clause must distinguish between information that is genuinely confidential and information that is simply part of an employee's general skill and knowledge. Courts will not enforce post-employment restrictions over what an employee has absorbed as general professional expertise. Your clause needs to carve out "general know-how" clearly so the remainder — the genuinely confidential material — remains enforceable.
Traps to watch for
- No survival term. If the clause is silent on when the obligation ends, it is ambiguous whether it survives termination. State expressly that the obligation continues after the employment relationship ends.
- No remedies clause. The clause should acknowledge that breach may cause irreparable harm, and that the employer is entitled to seek injunctive relief without needing to prove financial loss — this makes obtaining interim injunctions faster.
- Listing too broadly. Including information that is publicly available or that the employee clearly knew before joining undermines the whole clause and gives a court reason to discount it.
How the restraint of trade clause works
What it does
A restraint of trade clause restricts what an employee can do after they leave. There are three common variants:
- Non-compete — prevents the employee from working for a direct competitor or starting a competing business for a defined period within a defined geography.
- Non-solicitation of clients — prevents the employee from approaching clients they serviced or had contact with during employment.
- Non-solicitation of staff — prevents the employee from recruiting your people into a competitor or their own new venture.
These clauses protect the investment you made in training the employee, building the client relationships they serviced, and developing the systems they used.
The enforceability threshold
This is the clause most often drafted incorrectly — and most often litigated. At common law, a restraint of trade clause in an employment contract is void unless it is reasonably necessary to protect a legitimate business interest of the employer. Courts look at whether the scope, geography, and duration of the restraint go no further than necessary to protect that interest.
In New South Wales, s 4 of the Restraints of Trade Act 1976 (NSW) gives courts a broader power: a restraint is valid to the extent it is not against public policy, and courts can sever an unreasonable restraint down to a reasonable core rather than simply voiding the whole clause. This is a material difference from the common law position in other states, where an unreasonable restraint is more likely to be struck out entirely.
Cascade the restraint terms
Use cascading restraints. Rather than one time period and one geographic zone, draft a series — for example, twelve months, then six months, then three months; national, then state-wide, then within 50 km — so that if a court finds the widest formulation unreasonable, the next narrower version is already in the contract ready to be enforced. A single-scope clause that fails leaves you with nothing.
Traps to watch for
- Treating all roles the same. A restraint appropriate for a senior sales executive who managed key accounts is unlikely to be enforceable against a junior operations staff member with no client contact. Calibrate to the actual role.
- Relying on geography when the business is national or online. If your clients are across Australia and your employee serviced them by phone and email, a restraint limited to a single city may not protect the interests you actually have.
- Ignoring consideration. A restraint added after an employee has already started — without any new benefit in exchange — may lack contractual consideration, making it unenforceable. Get it signed at or before commencement, or provide fresh consideration if adding it later.
How the intellectual property assignment clause works
What it does
Under s 35(6) of the Copyright Act 1968 (Cth), where an employee creates a literary, dramatic, artistic or musical work in the course of their employment under a contract of service, the employer is the first owner of copyright in that work. So for copyright in creative works produced as part of the job, the law already puts you in the right position.
The problem is that s 35(6) does not cover everything. It does not automatically assign:
- inventions and patent rights (which are governed by the Patents Act 1990 (Cth) and turn on the terms of employment and the employee's specific duties)
- designs
- improvements to processes or systems the employee contributed to incidentally
- works created partly in work time and partly outside it
- work created using business resources but arguably outside the scope of employment
An IP assignment clause fills those gaps by contractually vesting all IP created by the employee in connection with the business — however it is created and whenever it is created — in the employer, from the moment of creation.
Assign IP in the present tense
The clause should also include a present-tense assignment ("the employee hereby assigns") rather than an agreement to assign in the future. A future agreement to assign still requires the employee to execute a further document. A present-tense assignment operates immediately on creation of the IP, which matters if the employment ends suddenly before any transfer document is signed.
Traps to watch for
- No moral rights waiver. Under the Copyright Act 1968 (Cth), creators retain moral rights — including the right of attribution and the right of integrity — even when they assign economic rights. Moral rights cannot be assigned, but the employee can consent to acts that would otherwise infringe them. Include a consent provision.
- Forgetting pre-existing IP. If the employee brings in software, frameworks, or creative assets they developed before joining, a poorly drafted clause could accidentally assign those too. Carve out pre-existing IP or require the employee to disclose it and grant a licence.
- No obligation to assist. Include a term requiring the employee (and, post-employment, the former employee) to sign any documents and do any acts reasonably needed to formalise and register IP rights. Without this, you may own the IP in equity but struggle to get patents or trade marks registered in the company's name.
Optional clauses worth considering
- Garden leave. If the restraint period is genuinely long, you may want the right to place the employee on paid leave during their notice period so they are out of the market without the enforceability risk of an unpaid restraint.
- Return of property. Requires the employee to return all devices, documents, and materials — including electronic copies — on termination. Pairs with the confidentiality clause to reduce the risk of data walking out the door.
- Entire agreement clause. Confirms the written contract supersedes prior representations and negotiations. Important if you made any promises during recruitment that you do not intend to be contractually binding.
- Governing law clause. Specifies which state's law governs the contract. Material if you operate across states, since restraint enforceability rules vary — the NSW Act gives courts more flexibility than the common law position that applies elsewhere.
- Dispute resolution clause. Requires the parties to attempt mediation before litigating. Reduces the cost of enforcing or contesting the contract if something goes wrong.
How Artificer Legal can help you get these clauses right
The three clauses above interact. A confidentiality clause that is drafted too broadly weakens your restraint of trade clause; an IP clause with gaps creates arguments about what the employee actually assigned. Artificer Legal reviews employment contracts by working through each clause in sequence, testing it against the role, the industry, and the jurisdiction — not applying a template.
The specific questions we focus on:
- Whether the confidentiality clause's definition of protected information is specific enough to survive a challenge.
- Whether the restraint is calibrated to the employee's actual access and the legitimate interest at stake.
- Whether the IP clause covers the full range of output the employee is likely to produce, including software and process improvements.
- Whether the contract includes a governing law clause matched to where enforcement is most likely to occur.
- Whether the contract will hold up if the employee was already employed and the protective clauses were introduced mid-employment.
We also look at what is missing — the clause you did not think to include is usually the one that matters when a dispute arises.
The restraint of trade clause is the usual point of failure
If you had to pick one clause that most often decides the outcome in an employment dispute, it is the restraint of trade clause — not because it is the most important in theory, but because it is the most commonly misdrafted. Employers include a single twelve-month national restraint, a court finds it excessive for a mid-level employee, and the clause is gone. The confidentiality clause can then only protect genuinely secret information (a difficult standard to prove), and the former employee is free to call your clients the following week.
To recap: a confidentiality clause must define what it protects and survive the end of employment; a restraint of trade clause must be proportionate to the role and, where possible, use cascading terms to give a court something to enforce; and an IP assignment clause must go further than the Copyright Act's default rule to capture patents, designs, and incidental work. Together, these three clauses are the protective layer that employment law does not supply for you — they are the terms you have to draft yourself.