A restraint of trade clause, is a clause inserted into an employment contract, which restrains an employee from working in a certain area, for a certain period of time. This employment contract clause may operate both while the employee is working for the employer, and after.
In Just Group Ltd v Peck,[1] the Supreme Court of Victoria (“the Court”) found that a restraint of trade clause in an employee’s employment contract was unreasonable and as a result, unenforceable. The restraint imposed by the employer in the employment contract, prevented the employee from working for 50 other brands. The Court found that the restraint of trade clause in the employment contract was far too broad and was therefore unreasonable.
The employer in this case argued that the Court should sever all brands listed, except for the brand that the employee had begun working for, in order to allow the clause to be enforceable. The Court followed the common law position on severance, that a court “cannot ignore the fact that a restraint goes beyond that which is reasonable” (at [72]).
The Court noted that had the case been decided in NSW, the outcome would most likely have been different, as in NSW restraint of trade clauses in employment contracts are governed by the Restraints of Trade Act 1976 (NSW). The NSW legislation allows NSW courts to “permit the enforcement of a covenant which might otherwise be void by operation of the common law doctrine, is its particular application on the facts is reasonable” (at [71]).
Tips for Employers
Employers should:
- ensure restraints inserted into contracts of employment are not too wide
- seek advice from an employment lawyer in relation to how to draft a restraint of trade clause in an employment contract, in order to ensure that it will be enforceable
- update any current employment contracts to ensure that the contracts are in line with current employment law
Questions/Assistance
If you would like more information about employment contracts or if you would like any assistance in other workplace law matters from an employment lawyer in Sydney, please feel free to speak with or email one of our specialist employment lawyers on (02) 9635 7966 or info@matthewsfolbigg.com.au
DISCLAIMER: This article is provided to clients and readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as definitive or complete statement of the relevant workplace law.
