You've just received a draft employment contract for a senior hire, or you're selling your business and the buyer's solicitor has sent over a restraint schedule. Either way, you're staring at a set of clauses that purport to limit what someone can do after they leave — and you need to know which ones will actually hold up, which ones are traps, and what choices you have in how they're written.
Restrictive covenants are post-relationship limitations built into a contract. They bind what someone can do after the working or commercial relationship ends: who they can work for, which clients they can approach, and whether they can recruit your team. Used well, they protect the goodwill, client relationships, and confidential information that give your business its competitive edge. Used carelessly, they are unenforceable clauses that give false comfort — or expensive litigation bait.
The clauses that do the work
Non-compete
The non-compete is the most ambitious of the restraint types and the hardest to enforce. It prevents a person from working for, or starting, a competing business for a defined period within a defined territory.
Courts apply the restraint of trade doctrine — an established common law principle that treats any restraint on a person's ability to earn a living as prima facie void unless the party seeking to enforce it can show the restraint goes no further than reasonably necessary to protect a legitimate business interest. That interest must be real: confidential information the person actually held, or client relationships they personally built, not a generalised anxiety about competition.
Drafting decisions that matter here:
- Geography: a restriction covering all of Australia is rarely justifiable for a regional sales manager. The clause must match where the person genuinely operated and where the business competes.
- Duration: courts treat shorter periods more favourably. In an employment context, twelve months is routinely challenged; six months for a mid-senior role is often more defensible. Business-sale restraints can run longer because the seller receives payment for the goodwill being restricted.
- Activities: a blanket ban on working in a sector will fail where a narrower ban on servicing named clients would have been sufficient. Be specific about the actual activities that would cause harm.
The trap with non-competes: employers routinely draft them too broadly, confident they'll be read down by a court if needed. That is a risky assumption — courts are not obliged to rescue a clause written in bad faith, and in NSW the Restraints of Trade Act 1976 (NSW) gives the Supreme Court discretion to void a restraint altogether where it finds there was a manifest failure to even attempt reasonable drafting (see s 4 of that Act).
Non-solicitation
A non-solicitation clause prevents the departing person from actively approaching your clients, customers, suppliers, or referral partners to divert business to a competitor or to their new employer.
This clause is almost always easier to defend than a non-compete because it targets a specific harmful behaviour rather than restricting a person's livelihood entirely. Courts look more favourably on clauses that:
- Limit protection to clients the person actually dealt with during a defined lookback period (e.g. the twelve months before departure)
- Run for a shorter period than a parallel non-compete
- Are tied to the person's role and the genuine risk of relationship capture
Variants to watch: a counterparty may push for a clause that only restricts active solicitation, not passive receipt of inbound client calls. That distinction matters — see the next clause.
Non-dealing
Where non-solicitation only covers outbound approaches, a non-dealing clause goes further: it prohibits the person from dealing with your clients at all for a set period, even if the client makes the first move.
This clause is more contentious and more likely to be scrutinised:
- It requires a stronger justification — usually that the person had such deep knowledge of, or influence over, the client relationship that passive contact alone creates real risk
- The protected category should be narrow (e.g. key accounts, not the full customer base)
- An overreaching non-dealing clause layered on top of a non-compete invites a court to strike down both
The practical play: use non-dealing selectively, for the most relationship-critical roles, and pair it with a shorter duration than any adjacent non-compete.
Non-poaching (non-recruitment)
A non-poaching clause stops the departing person from recruiting your employees or contractors to join them at a new venture or employer.
This clause is frequently overlooked at the drafting stage and then desperately wanted the moment a star employee follows a departed executive out the door.
Key drafting choices:
- Define the protected class precisely — "any employee of the company" is harder to defend than "any employee with whom the departing person directly worked"
- Set a lookback period for who counts as a protected employee (people who left before the restriction period began should not normally be caught)
- Match the duration to the actual recruitment risk
One trap: a broadly drawn non-poach that covers contractors, suppliers, and advisers as well as employees can start to look like anti-competitive conduct between businesses rather than a pure employment protection. That distinction matters under the Competition and Consumer Act 2010 (Cth), which the ACCC administers and which covers anti-competitive arrangements between businesses. The Government's proposed reforms (discussed below) also specifically target no-poach agreements between competing employers.
Confidentiality obligation
A confidentiality clause in an employment or business-sale contract requires the person to keep specified information secret during and after the relationship.
This is the most durable of the restraint types because it does not depend on preventing someone from earning a living — it requires only that they not disclose or misuse information that was never theirs to begin with. Courts are generally more willing to enforce these clauses, provided:
- The information is actually confidential (not information available publicly or in the industry generally)
- The clause identifies the protected categories with reasonable precision (customer databases, pricing models, technical processes — not simply "all information the company holds")
- The obligation is perpetual or runs for a period consistent with the information retaining genuine commercial value
Confidentiality obligations often sit alongside or within a broader non-disclosure arrangement, but including them directly in the employment contract ensures they are part of the core bargain.
Cascading (step-down) provisions
A cascading clause does not protect a single interest — it is a drafting technique applied across the time and geography elements of the other restraints.
Rather than stating a single twelve-month, Australia-wide prohibition, the clause presents a matrix: twelve months / nine months / six months / three months, and Australia / the relevant state / the relevant city. The intent is to give a court options. If the twelve-month Australia-wide restriction is too broad, the clause asks the court to enforce the next-narrowest combination instead.
The benefit of cascading clauses:
- They signal good-faith drafting, which matters when courts exercise their discretion under the Restraints of Trade Act 1976 (NSW) or its common law equivalent in other states
- They reduce the risk of a court voiding the clause entirely when the broadest option fails
The limitation: cascading clauses are not a licence to include absurdly broad outer limits. If the outermost constraint is so unreasonable that it reflects no genuine attempt to tailor the clause, a court in NSW can still void the whole restraint under s 4(3) of the Act.
Optional or situational clauses
Not every restraint schedule needs every clause. The following are worth adding when the specific trigger applies:
- Garden leave provision: triggers during a notice period, requiring the employee to stay home on full pay rather than work out their notice with a competitor. Reduces the window in which they can use current client and strategy intelligence. Include it when the role involves live deal exposure or current client-facing work.
- Intellectual property assignment: assigns ownership of work product created during the relationship to the employer or buyer. Particularly important in technology, creative, and advisory businesses where the seller's work output is part of the goodwill being transferred.
- Return-of-property clause: requires devices, files, and copies of confidential documents to be returned or destroyed at exit. Provides the evidentiary foundation for later enforcement action if documents appear in a competitor's pitch.
- Acknowledgement of reasonableness: a short clause in which the person acknowledges that the restrictions are reasonable given their role. Not conclusive, but useful background evidence in any later enforceability dispute.
- Survival clause: expressly states that restraint obligations survive termination of the main agreement. Without this, there can be argument about whether post-termination obligations persist when a contract is ended by breach.
Policy watch: proposed non-compete reforms
The Australian Government announced in the 2025–26 Budget a proposal to ban non-compete clauses for workers earning below the high-income threshold — currently $183,100 per year from 1 July 2025 (set under the Fair Work Act 2009 (Cth)). The reforms are subject to further consultation and legislation passing Parliament; implementation is targeted for 2027. If legislated, a non-compete clause in an employment contract for a worker below the threshold would be void, regardless of how carefully it is drafted.
This does not affect business-sale restraints, which operate in a different commercial context. And for workers above the threshold, the common law and the existing legislative framework in each state continue to apply.
Given the pace of consultation, any business that relies on non-compete clauses for employees in that income band should get current advice before a new hire, and before enforcing an existing clause.
Where Artificer Legal can help
Restrictive covenants are a high-stakes area to get wrong — either the clause is unenforceable and provides false comfort, or it is drafted so aggressively that it exposes you to the cost of defending an enforcement action on an unreasonable restriction.
When reviewing or drafting a restraint schedule, an Artificer Legal practitioner would focus on:
- Clause-by-clause legitimacy: for each restraint, mapping the specific interest it is designed to protect against the person's actual role, access, and knowledge. A clause that cannot be matched to a real interest will not survive scrutiny.
- Calibration of time and geography: setting the narrowest parameters that genuinely protect the identified interest, rather than the broadest that might plausibly be argued. Restraints drafted this way are more likely to hold up and more likely to deter breach in the first place.
- Context-appropriate scope: the right clause set for a senior sales hire is different from the right clause set for a departing founder or a business seller. Artificer will push back on generic templates applied across roles.
- Enforcement posture: if a clause is breached, the available remedies — including urgent injunctive relief to stop ongoing conduct, damages for loss, and in appropriate cases account of profits — depend on the underlying clause being sound. We advise on the interplay between drafting quality and enforcement prospects before the relationship begins, not only after it ends.
The non-compete activities clause
If you do only one thing when reviewing a restraint schedule, look at what the non-compete actually covers — not the duration or the geography, but the activities clause. This is the element that courts examine most closely, and the one most often drafted on autopilot.
A blanket restriction on working in a named industry or sector — rather than on the specific activities that would actually damage your business — is the single most common drafting failure in Australian restraint clauses. It signals overreach, invites a court to find the whole clause void, and usually fails at exactly the moment you need it most.
The summary of what sound restrictive covenant drafting delivers: each clause tied to a specific legitimate interest, calibrated in time and scope to that interest, presented in cascading form where appropriate, embedded in the right agreement at the start of the relationship, and supported by exit processes that make any later enforcement case straightforward.