What is a restraint of trade?
Restraint of trade clauses are often used by employers in their employment contracts with employees to protect their businesses' confidential information, trade secrets, good will and other legitimate business ideas. These clauses, also known as non-compete clauses, limit the extent of what an employee can do whilst employed and more specifically, after their employment ends. Furthermore, they usually restrict employees from working for competitors or businesses within the same industry or in a specific geographical radius in relation to the employer’s business location.
International Developments
Recently the US Federal Trade Commission announced that they would ban non-compete clauses in an attempt to promote competition to protect the “fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation”. The US’ stance adds to a growing list of international jurisdictions that have opted to restrict restraint of trade clauses.
The Future for Australia
There is a high possibility that Australia may follow in the US’ footsteps, following the Australian Treasurer announcing a Competition Review back in August 2023. This review aims to assess whether Australian competition laws, policies and institutions remain suitable. On 4 April 2024, as part of this review, Treasury released an Issues Paper regarding the use of non-compete clauses outlining their concerns that these clauses negatively affect job mobility, wage growth and innovation.
Whilst Treasury is undertaking this review of non-compete clauses, there is no definitive decision on whether these clauses would be banned for usage in employment agreements - yet. We note that prohibiting restraint clauses will force employers to consider alternative protective measures, such as confidentiality clauses.
We can assist you with drafting employment agreements tailored to your company’s needs in a manner that focuses on protecting your business in the event of termination. For more information, or to discuss your employment needs, please contact Jenkins Legal & Advisory on (02) 4929 2000 or email office@jenkinslegal.com.au.
This article is not legal advice, and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.
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