When is a post-employment restraint unreasonable?

Jul 24, 2022

Employment contracts often include clauses that seek to restrict an employee once their employment ends, for example to prevent a former employee from soliciting clients, co-workers or working for a competitor. Post-employment restraints are intended to protect an employer from a former employee damaging their business.

But when is a post-employment restraint enforceable?

Why have a restraint?

Employees often establish strong relationships with clients, suppliers or contractors and are often privy to the inner workings of the business. Senior employees will often have a detailed knowledge of the trade secrets and confidential information of a business.

If an employee had free rein to use that information once they left, they could have devastating consequences for their former employer’s business.

The balancing act

Restraints are therefore an important and a legitimate tool to protect a business’ interests.

But important as they may be, they must be weighed against the former employee’s ability to make a living once they leave a business. Restraints will only be upheld to the extent that they are reasonably necessary to protect the business interests of an employer.

When considering what’s reasonable, Courts will look at factors such as:

  • the seniority of the employee
  • the role they were in
  • the size and nature of the industry in which the business operates
  • how much the employee was paid (the theory being that a large salary may set-off any loss of ability to work during the restraint period).

Restraints are generally drafted to include both a period of time and a geographical area that the restraint will cover – the ‘reasonableness’ of each of these must be considered. If a Court finds that the restraint is not reasonable, the employer will not be able to rely on it.

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Getting the terms of your employment contracts right is key to protecting your business.

For all questions regarding employment law, please do not hesitate to contact Heather Richardson or Isabella Royce.