What is a Restraint Clause?

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Business owners put a lot of hard work and effort into building their business. It is important to protect your commercial information and intellectual property.

What do you do when an employee leaves to work for a competitor?

Firstly, it is very important to have a well drafted employment agreement in place which contains strong restraint of trade clauses in place which gives you protection against employees or ex-employees exploiting your business.

Often this will include what is commonly referred to as a cascading restraint clause which provides a reducing time and/or geographical area.

The employment agreement will clearly bring to the attention of the employee their obligations pursuant to the restraint clause.

What is a restraint clause?

Basically, there are two types of restraint clauses:

  1. non-competition clauses, which prevent ex-employees from working with direct competitors for a specific period or distance after their employment ceases; or
  2. non-solicitation clauses, which prevent ex-employees from soliciting clients and current staff from your business.

What do you do when an employee leaves your employment and breaches their restraint of trade clause?

  1. You can send the ex-employee and/or the new employer a letter outlining and reminding them of their obligations;
  2. Require the ex-employee to sign an undertaking to stop breaching the restraint of trade clause and maintain confidentiality;
  3. If the above does not stop the behaviour, then you can seek an injunction through the courts and/or damages suffered to your business

Many businesses will have the employee sign an exit deed when they leave to reinforce the restraint of trade clause ad that you will enforce the obligations against them if necessary. There is no obligation on an employee to sign an exit deed but when done it can be a powerful tool.

It is important to remember restraint of trade clauses are complex and can be costly to enforce through the courts. Therefore a well-drafted clause in the employment agreements is essential.

At FC Lawyers we have acted for businesses in a large range of industries to secure their employment agreements are drafted correctly including the very important restraint of trade clauses.

Contact our team of business and commercial lawyers today to discuss your employment law needs.

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