Enforcing a restraint of trade clause in Australia

You have just learned that a former employee — your sales manager, your CFO, your lead developer — has accepted a role with a direct competitor. You flip to the restraint of trade clause in their employment contract. Now the real question starts: will a court actually enforce it?

Restraint of trade clauses do not enforce themselves. A clause that looks airtight on paper can be struck out entirely if it is drafted too broadly or applied in the wrong circumstances. Before you instruct lawyers to send a cease-and-desist letter, or before you sign a new employment agreement containing a restraint, it is worth understanding how the enforceability test works — and where most clauses fail it.

The choice you are actually making

Employers often treat restraint of trade as a binary: the clause is in the contract, so it applies. But the real choice is more nuanced. You are deciding whether the scope of the restraint — its duration, its geographic coverage, and the activities it prohibits — is calibrated tightly enough to survive judicial scrutiny, and whether enforcing it in the specific situation in front of you is worth the legal cost and reputational risk of a fight you might lose.

There is a version of this question that collapses quickly: if the clause is plainly overbroad on its face (covering an entire country for two years with no connection to the employee's actual role), you are not really deciding whether to enforce it — you are deciding whether to spend money on litigation that hands the other side a costs order. The harder version arises when the clause is defensible but uncertain, and the outcome depends on facts your lawyers will need to test.

The factors that move the enforceability call

Whether the clause protects a legitimate business interest

A restraint of trade clause can only be enforced to protect a genuine business interest. Two categories reliably qualify: confidential information whose disclosure would cause real commercial harm, and the goodwill built through close relationships with customers or clients.

A restraint aimed at simply preventing competition — keeping a former employee out of your market regardless of what they know — will not pass this threshold. Courts look at what the employee actually had access to. A customer-facing account manager who holds long-standing client relationships is a different risk profile from a back-office administrator who never spoke to clients.

Ask yourself:

• Did this employee have regular, direct contact with our clients, key suppliers, or partners?
• Do they hold confidential pricing, product development, or strategic information that a competitor could use against us?
• Could their departure genuinely damage a business relationship, or are we reacting to the loss of a good performer?

If the honest answer to all three is "not really," enforcing the restraint is unlikely to succeed.

How far the clause reaches

Even where a legitimate interest exists, the restraint must go no further than is reasonably necessary to protect it. Courts assess this against two variables: the geographic scope of the restriction, and how long it runs.

Geographic scope: A clause restraining a regional sales manager from working anywhere in Australia is almost certainly overbroad if their client relationships were concentrated in one state or city. Restraints should track the actual footprint of the business interest being protected. A national restraint is defensible for a national role with national client exposure; it is harder to justify for a role that was geographically bounded.

Duration: The longer the period, the more scrutiny it attracts. Restraints of six months or less for mid-level employees are generally treated more generously. Periods of 12 months or longer require a strong factual basis — typically a senior role, access to genuinely sensitive strategy, or close personal ownership of major client relationships. Periods beyond 12 months for most employment scenarios are difficult to justify.

In Just Group Ltd v Peck [2016] VSCA 334, the Victorian Court of Appeal declined to enforce a restraint preventing the company's CFO from joining a competitor. The clause prohibited her from working with a list of 50 retailers across Australia and New Zealand for up to 24 months. The Court found the clause restrained her from involvement with many entities where there was no demonstrated competitive overlap or relevant confidential information — a scope that went far beyond what was needed to protect any legitimate interest.

The activities the clause prohibits

Non-competition clauses (preventing work for a competitor) and non-solicitation clauses (preventing approaches to clients or staff) are treated differently.

Non-solicitation clauses are generally easier to sustain because they are targeted: they prevent a specific harmful act — poaching a client or recruiting a colleague — rather than excluding the former employee from an entire industry or market. A well-drafted non-solicitation clause that runs for six to twelve months, covering clients the employee personally serviced, is the most defensible restraint type available to most SMBs.

Non-competition clauses carry a heavier burden. To enforce them, you need to show that the employee's mere presence at a competitor — not just their active solicitation — poses a genuine risk to your business. That requires evidence that the employee holds information or relationships of a character that makes the competitive situation untenable, not just inconvenient.

The negotiation history and the employee's bargaining position

A restraint negotiated by a senior executive who was represented by their own lawyers, receiving a significant salary package, carries more legitimacy than one buried in a standard-form contract handed to a junior employee on their first day. Courts treat the circumstances in which the clause was agreed as relevant context.

Courts also consider whether the employee received any compensation specifically for agreeing to the restraint. Paying a meaningful consideration for the restriction — reflected in the salary or as a separate term — does not guarantee enforceability, but its absence is a factor that can count against enforcement.

• Was the clause presented as non-negotiable, or did the employee have a genuine opportunity to review it?
• Did the employee seek or receive independent legal advice before signing?
• Is the seniority of the role consistent with the scope of the restriction?

Whether the clause can be read down rather than struck out

In New South Wales, s 4 of the *Restraints of Trade Act 1976* (NSW) gives the Supreme Court the power to declare a restraint valid to the extent it is not against public policy, rather than voiding it entirely. This statutory read-down power means that in NSW, a clause that is drafted with cascading alternatives — successively reducing periods and geographic areas — gives a court the mechanism to select the narrowest version of the restraint that is still defensible.

Outside NSW, courts apply the common law position, which is more binary: a clause that is unreasonable as written is generally void. A court in Victoria or Queensland cannot rewrite the clause for you; the clause either stands or falls on its own terms. In Just Group, because the Victorian Court of Appeal could not simply cross out offending words and leave a valid remainder, the entire restraint failed.

For employers operating outside NSW, or whose contracts are governed by another state's law, cascading drafting is not just a drafting technique — it may be the only structural protection available if the primary restraint period turns out to be too long.

Enforceability across common profiles

The following profiles are a rough guide, not a prediction of outcome. Every case turns on its specific facts.

A restraint is more likely to hold where the employee was senior, the clause was tailored to their actual role, the duration is at the lower end, and the confidential information or client relationships at risk are demonstrable. It is least likely to hold where the clause is a generic template applied without modification to an employee whose departure creates competitive inconvenience but not genuine commercial harm.

How Artificer Legal can help

Deciding whether to enforce a restraint — or how to draft one that will hold — requires an assessment of the specific facts, the applicable state law, and the realistic prospects against the cost of litigation. At Artificer Legal, our employment law practitioners work through that analysis with you before any letter goes out or any clause goes into a contract.

For existing contracts, we assess the clause against the employee's role, the applicable jurisdiction, and the facts of the situation to give you an honest view of the prospects. For new contracts, we draft restraints calibrated to the actual business interest you need to protect — with cascading structures where appropriate — so that the clause you rely on is not the one a court strikes out two years later.

The question worth answering before anything else

The factor that most often decides restraint of trade disputes is one employers rarely test in advance: is the scope of this clause actually justified by what this particular employee knows and who they deal with? A restraint drafted for a senior executive, applied without modification to every employee in the business, does not carry the weight of the role it purports to restrict.

The most common regret in restraint of trade disputes is not that the clause failed — it is that the employer spent months and significant legal fees finding out it would fail, when a short review at drafting time would have revealed the problem. Before enforcing a restraint or inserting one, the question to answer is not "does the clause say what I want?" but "can I demonstrate, with real evidence, that this scope is genuinely necessary to protect something valuable?"

The legal test is reasonableness. The business test is the same.