Restraint of Trade Clauses: What to Check Before You Sign
You have an offer. The salary is right, the role is right, and you are ready to say yes. Then you reach page eleven of the contract and find a clause that says you cannot work for a competitor for twelve months after you leave.
Most people sign it without much thought. Leaving feels a long way off.
Then, a few years later, the perfect next role comes along at a competitor. And that clause you skimmed suddenly matters a lot.
Restraint of trade clauses are common in Australian and New Zealand employment contracts, particularly at manager and executive level. This article explains what they are, what to look for and when to get advice.
It is general information, not legal advice. Employment law is detailed and changes. If a restraint could affect your next move, speak to an employment lawyer before you sign.
What a restraint of trade clause is
A restraint of trade is a clause that limits what you can do after you leave a job. It is designed to protect the employer’s legitimate business interests, such as client relationships, confidential information and their workforce.
There are three common types:
Non-compete. You cannot work for, or set up, a competing business for a period of time, often within a set area.
Non-solicitation of clients. You cannot approach or deal with the employer’s clients for a period of time.
Non-solicitation of employees. You cannot approach the employer’s staff to join you elsewhere.
Most contracts combine more than one.
Are they enforceable?
In both Australia and New Zealand, the starting point is that restraints are not enforceable unless they are reasonable. Courts look at whether the restraint protects a legitimate interest and goes no further than needed.
Factors that are often considered include:
How long the restraint lasts
The geographic area it covers
The activities it restricts
How senior you are and your access to clients or confidential information
Whether you were paid anything for agreeing to it
Many contracts use what are called cascading or step-down clauses. These list several options, such as 12, 6 or 3 months, and several areas, such as Australia, the state or the city, in the hope that a court will enforce at least one.
Just because a restraint might not be enforced does not mean you can ignore it. Defending a legal challenge is stressful and expensive, and some employers will pursue it.
Changes on the way in Australia
The Australian Government has announced reforms to ban non-compete clauses for many employees earning below the high income threshold, with changes intended to start from 2027 once legislation is passed. At the time of writing, details such as transitional rules and the treatment of non-solicitation clauses were still being worked through.
If you are earning above the threshold, or your contract mainly uses non-solicitation clauses, the reforms may not change much for you. Check the current position before you rely on them.
New Zealand has also seen proposals to change how restraints work for employees. Again, check the current law when you are reviewing a contract.
What to check before you sign
How long does it last?
Restraints of three to six months are common for mid-level roles. Twelve months or more is more common at senior level. Longer periods are harder to justify.
What area does it cover?
A restraint covering all of Australia may be hard to justify if you only worked with clients in one city.
What activities does it restrict?
Is it any work for a competitor, or only work in a similar role? Is it all clients, or only those you dealt with in the last 12 months? The narrower the restriction, the more likely it is reasonable, and the less it will affect you.
Who counts as a competitor?
Some clauses define competitors very broadly. In a diversified group, this could include businesses you would never think of as rivals.
Is there any payment?
Some senior contracts include a payment during the restraint period. This is more common in some countries than in Australia and New Zealand, but it is worth asking about, particularly for long restraints.
Is there garden leave as well?
If your contract allows the employer to put you on garden leave during your notice period, check whether that time counts towards the restraint. Without that, you could face a long period out of the market. See how to handle a long notice period for more on this.
Can you negotiate a restraint?
Often, yes. Many people do not realise this.
Restraints are usually part of a standard template. Employers are often willing to adjust them for the right candidate, particularly at senior level. Common changes include:
Shortening the period
Narrowing the area
Limiting it to clients you actually dealt with
Defining competitors more precisely
Making the restraint period run at the same time as any garden leave
Raise it calmly and early, as part of the overall offer discussion. Explain what you need and why. For more on how to approach the conversation, see executive offer negotiation.
What about your current restraint?
If you are thinking of moving, check your current contract before you start talking to competitors. Know what you agreed to.
Tell your new employer about any restraint early. A good employer will want to understand it and may get their own advice. Hiding a restraint until after an offer can damage trust and, in some cases, lead to the offer being withdrawn.
If there is a real risk of a dispute, get legal advice before you resign.
Confidentiality is separate
Even without a restraint, you have ongoing duties not to use or share your former employer’s confidential information. This applies regardless of how long you have been gone.
In practice, that means you should not take client lists, files, pricing or any other confidential material with you when you leave. Doing so can cause far more trouble than any restraint.
When to get legal advice
Consider speaking to an employment lawyer if:
The restraint is longer than six months
It covers a wide area or broad range of work
You are planning to move to a competitor
You are senior and the role involves key clients
You are leaving on difficult terms
Your new employer has concerns about your current restraint
The cost of an hour of advice is small compared with the cost of a dispute or a lost opportunity.
Restraints at different career levels
How much a restraint matters depends on your role.
Early career. Restraints are less common, and when they appear they are often harder to justify. Read them anyway. Ask about anything that seems broad.
Mid-career and managers. Non-solicitation clauses are common, particularly in roles with client or supplier contact. Pay attention to the period and to how “client” is defined.
Executives. Restraints are almost standard and tend to be longer and broader. Your access to strategy, pricing and key relationships makes them easier for an employer to justify. They are also more likely to be negotiable, because you have more bargaining power at the offer stage.
Board and advisory roles. Restraints are less common for non-executive directors, but confidentiality and conflict of interest obligations are significant. Check your letter of appointment.
Questions to ask the employer
If you are unsure what a restraint means in practice, ask. Reasonable questions include:
“Can you help me understand the business interest this protects?”
“Who would you consider a competitor for this clause?”
“Would the restraint period run at the same time as any garden leave?”
“Is there flexibility on the period or area for this role?”
A good employer will not be offended. These are sensible questions from someone who reads their contracts carefully, which is what most employers want in a senior hire.
A note for New Zealand readers
In New Zealand, restraints are also assessed for reasonableness, and the employer usually needs a legitimate interest to protect. Many New Zealand contracts include restraints that would be hard to enforce in full. Proposals to change how restraints work for employees have been before Parliament. Check the current position with an employment lawyer before relying on any particular rule.
Keep a copy of every contract
It sounds obvious, but many people cannot find their employment contract when they need it. Keep a copy of every contract and variation you sign, including any documents about bonuses, shares or promotions. If a restraint question comes up years later, you will want the exact wording.
Your next step
Find your current employment contract and read the restraint clause. Note the period, the area and what it restricts. If you are considering a move, have that information ready before your first conversation with a new employer.
If you are planning a career move and want help with the whole process, from positioning to offer, my career transition support covers it.
If you are weighing up an offer and want a second opinion on the role, book a complimentary Clarity Session.
