In many professional occupations, it is not unusual for employees to find a restraint clause in their employment agreements.
Traditionally, these types of agreements were not always enforced by employers. However, in recent times as competition for skilled labour is strong, we have had a number of clients ask for advice on this issue.
What is an employee restraint clause?
The clause is often found in employment agreements and they have the effect of disallowing (or restraining) the employee from working in a similar line of work if they terminate their employment. These restraints are usually for a set period of time and within a set kilometre radius of the business in which they are presently working.
As an example, a mechanical engineer working for a firm in Aspley may have a clause which restrains him/her from working for another mechanical engineering firm within 5 kilometres of Aspley for up to 6 months. If the employee terminates their employment and then starts work the following week with another firm 100 metres down the road, they will be liable to their former employee, as they have breached the agreement.
Can they be enforced?
Many employees do not think that these clauses are enforceable. It is important to note that these agreements are enforceable, but they must be reasonable. If the restraint clause is not reasonable, the Courts will generally not enforce them.
Over the years, the Courts have taken into consideration a range of issues when deciding whether a restraint clause is reasonable. Some of these include the type of business, the locality, the likelihood of the employee being able to find alternative employment, and the length of time for which the employee is restrained.
Restraint clauses can not only prevent employees from working for competitors close by, they can also prevent employees from “poaching” clients, or taking confidential information with them to their new employer. These types of arrangements are also common and are often implied by law, even if there is nothing specific in an employment agreement.
All employees, especially professionals, should always check their employment agreements before considering resigning. It is essential that restraint clauses are heeded. If they are not, an employer may have the right to sue its former employee and this may not make a good impression on the new employer.