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Executive Restraint of Trade Solicitors - Australian Law

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Restraint of trade clauses contained in executive contracts of employment which prevent the employee from working for a competitor are commonplace. There is a generally held misconception amongst executives that restraint of trade clauses are unenforceable and whilst that may often be the case if the employment contract has not been professionally drawn up, almost all solicitors instructed by a company to draft contracts of employment are well aware of the legal requirements for a legally enforceable covenant in restraint of trade. If the circumstances of the employment justify a restraint of trade clause that is reasonable and does not place unjustified and onerous restrictions on an executive’s ability to earn a living, then the court will uphold the covenant and find against the errant executive who may well have top pay damages and legal costs if the case is lost.

Legitimate Interest Protection

To be enforceable against an executive, a restraint of trade clause must be reasonable in all the circumstances and must protect a legitimate interest of the employer. The extent of the covenant must be no wider than is absolutely necessary to protect that legitimate interest. Assessment of reasonableness will include consideration of the geographical limits and time scale of the covenant. If the restraint of trade clause satisfies these requirements it will be upheld. A shrewd executive may well agree to restraint of trade clause that is excessive in the full knowledge that it is unreasonable and will not be enforced by a court of law who will take the ‘blue pencil’ approach and rather than substitute reasonable terms will effectively delete it entirely from the contract of employment.

Breach of Contract

There is another issue that is of some importance, in regards to enforceability of restraint of trade clauses when an employer has been in breach of other conditions within its own contract of employment. If that be the case, the courts have indicated that that the employer is unable to rely on the post-employment restraints due to other breaches by the employer which effectively terminates the contact and all of its constituent parts including restraint of trade clauses.

Renegotiation

Excessive restraint of trade clauses that are unreasonable can be subject to renegotiation with an employer, who with hindsight, may appreciate that the initial clauses represent an excessive restriction that would not be enforceable in a court of law. Both employer and employee may prefer to be bound by a contract that will not result in expensive litigation upon termination.

Employment Lawyers

Our specialist solicitors give advice on employment covenants, restraint of trade, common law rights, contractual terms and wrongful dismissal. If you would like advice just complete the contact form, or email our offices or use the helpline.

LAWYER HELPLINE: 1800 221 167