Restraint of Trade Solicitors - Employment Lawyers Australia

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Employment contracts often contain covenants known as Restraint of Trade (ROT) clauses. These covenants frequently restrict an employee from taking employment with the employer’s competitors within a certain period of time after the termination of the contract. A general misconception held by many employees is that these ROTs are not enforceable. In some instances that is true; however, it is more often the case that employers instruct expert restrictive covenant solicitors to draw up their contracts and those solicitors are fully knowledgeable regarding the legal requirements of a legally binding Restraint of Trade covenant. When an employment situation justifies a reasonable clause that does not place undo restrictions in regards to the ability of an employee to gain further employment to earn a living, the courts will honour the covenant and rule against the errant employee that could very well be required to pay legal costs and damages in the lost case.

Justice Gummov stated in the decision Adamson v New South Wales Rugby League Ltd, “But there always remains the basic proposition … that the reasonableness of a restraint of trade must be tested, not by reference to what the parties have actually done or intend to do, but what the restraint entitles or requires the parties to do…”

Legitimate Interests Safeguards

Enforceable standards of the Restraint of Trade clause can be tested by looking at the reasonableness of the covenant as it applies to the interests of an employee and the public and must protect only those legitimate interests of an employer. The range and extent of clauses or covenants must not exceed what is absolutely necessary in safeguarding the employer’s legitimate interests. What can be assessed reasonable requires a consideration of time and geographical scale which is applied within the clause. When the ROT clause fulfils those requirements the court will most often uphold it. A shrewd employee could well comply and sign the employment contract even with what may be considered unreasonable or excessive restrictions, believing the court will not enforce those excessive clauses and might take a stance and that sets aside the entire ROT instead of substituting reasonable terms with a “blue pencil.”

Breach of Contract

Another matter with some significance pertains to a Restraint of Trade clause’s enforceability when employers breach other conditions or terms of a contract of employment that the firm specifically had drawn up to preclude such issues. In previous cases, the court has set precedence that such breach by an employer terminates the entire contract, to include the clauses pertaining to ROT.

Renegotiation

Excessive or extreme ROT clauses within an employment contract which can be judged unreasonable can be renegotiated with the employer that realises in hindsight that those initial clauses might be too excessive to be enforceable in court. The employer, together with the employee may seek to avoid expensive litigation after the contract of employment’s expiry.

When you need straightforward, professional advice regarding a restraint of trade clause, employment covenants, wrongful dismissal, contract terms or conditions, and all your legal rights under common law, send our offices an email, phone our helpline or utilise the contact form.

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