We totally understand that growing and protecting your business is quite a job. It’s a big one. And we get how important it is to properly protect it. One way businesses protect themselves is to ensure that they include and enforce restraint of trade clauses into their employment contracts. I’m sorry what? Yeah. A restraint of trade clause. Restraint of trade clauses will provide a way of protecting you from former employers taking advantage of your business. Because that just isn’t cool.
Restraint of trade provisions typically deal with non-competition type clauses:
- a) to prevent an employee from working with a competitor normally for a specific period or distance following termination of employment or;
- b) for non-solicitation to prevent them from poaching employees or customers.
When you include clauses like these in your employment contract, then your employees are on notice and are aware of the restrictions you want to impose. Notwithstanding such restraints, employees do breach these clauses. It’s pretty shite. But it does happen. So in these cases, you might want to enforce the restraint clauses.
It’s important to note that when a restraint of trade clause is drafted that it’s reasonable for your industry. If you have a business that’s quite unique and there are not many businesses of that type for example, then a restraint may be difficult to enforce.
Restraint of Trade Clause
A good example of a restraint of trade clause will be drafting in a waterfall, otherwise known as a cascading style. Sounds pretty fancy, right/ This incorporates different levels of distance and time. For example:
6 months; or
Courts will select the option they consider to be the most reasonable. A restraint clause is more likely to be enforced if it’s structured as per the above example.
What happens when an employee leaves:
It would be prudent (we like fancy words, sometimes) to have an exit deed ready for them to sign. An exit deed is an agreement that sets out the relationship between the parties post employment. It’s optional, but it also reminds the parting employee of their obligations including the restraint of trade obligations. This document will reaffirm to the employee that you consider the restraint provisions to be important and are willing to enforce them if required. If a deed is not an option, then a letter setting out a reminder of their obligations that you send to them or give them upon leaving is also something practical, and puts them on notice by reminding them of their ongoing obligations. It also shows that you take the obligations seriously. You’re no slouch!
How to enforce a restraint of trade clause?
When you discover an ex-employee has breached their restraint, you can send them a letter reminding them of their obligations, setting out how they have breached the clauses. For example, working for a competitor, trying to poach staff or customers... You can request that they sign an undertaking to ease their breach and maintain confidentiality. The letter may be enough to remind your ex-employee of their obligations and the ramifications of breaching those obligations. Nobody likes getting into legal hot water!
How to deal with an ongoing breach of restraint of trade obligations
If your employee continues to breach despite your request (so uncool!), then a follow up letter(s) may be necessary. This correspondence would include the same information as the first letter, while also highlighting what the consequences are for an ongoing breach. We get that having to send multiple letters is a pain in the proverbial arse, but it can go some way to showing the court you did everything you could to stop the breach. If you’re gonna do it, do it right...now that song is stuck on loop!
Seeking an Injunction aka going to court
If sending letters don't work and the breach continues, then you can seek an injunction. An injunction is an application to the court to stop an ex-employee from performing actions that cause the breach. If you do go down this path, you’ll need to really consider the ramifications, because it can be a pretty darn costly approach, and sadly there are no guarantees you’re going to come out on the winning side.
You have to think about the costs of pursuing versus the costs of the breach to your business, the likelihood of success, extent of the breach and the damage to your business due to the breach. Ultimately, it’s a commercial decision as to whether you want to pursue the yucky matter through the courts.
Courts typically will balance your interests versus the ex-employee's interests and their right to work.
Stay well and stay protected, friend. You’ve got this.
- Good restraint of trade clauses will act as a deterrent
- Restraint of trade clauses can be complex
- Enforcement is expensive
- Sign a deed or send an “exit letter” upon employee leaving
- Send letter in event of breach plus reminder letters (if breach continues)
- Seek an injunction (can be costly)
***Disclaimer. Please read!!***
This article is for general information purposes only and should be used solely as general guidance. It does not and is not intended to represent legal advice or other professional advice.
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