Understanding Restraint of Trade Clauses

Restraint of trade clauses are contractual provisions that restrict a party’s ability to engage in certain activities post-termination of a contract. Commonly found in employment and business sale agreements, these clauses aim to protect legitimate business interests such as confidential information, client relationships, and proprietary knowledge.

Legal Framework in Australia

In Australia, restraint of trade clauses are generally unenforceable unless they are reasonable in protecting legitimate business interests. The enforceability is assessed based on:​

  • Legitimate Interest: Does the clause protect a genuine business interest?

  • Reasonableness: Is the scope, duration, and geographical area of the restraint reasonable?

  • Public Interest: Does the clause negatively impact the public or competition?​

In Queensland, there is no specific legislation governing restraint of trade clauses. Instead, common law principles and the Competition and Consumer Act 2010 (Cth) guide their enforceability.

Case Law Developments

WorkPac Healthcare Pty Ltd v Branka Rovic & Ors [2017] QDC 22

In this case, WorkPac sought to enforce non-solicitation and restraint of trade clauses against former employees who established competing businesses. The Court emphasised the necessity for restraint clauses to be reasonable and tailored to protect legitimate business interests. ​
Outcome: The Court granted an interlocutory injunction restraining the employee from soliciting the employer’s clients or candidates for labour management services in the nursing and healthcare sectors. The Court, however, still allowed the employee to continue working in other recruitment and labour hire roles outside that industry.

Devil Dog Pty Ltd v Cook [2017] WASC 27

In this case, Devil Dog sought to enforce a 10-year restraint that was imposed following the sale of a business.
Outcome: The court granted an interim injunction, temporarily enforcing the restraint, noting that the clause may be enforceable due to its connection to a business sale and the protection of goodwill.

Lochdyl Pty Ltd v Lind [2024] SAMC 43

In this case, Lochdyl Pty sought to enforce a two-year restraint on a hairdresser. The Court stressed the importance of proportionality in restraint clauses. ​
Outcome: The Court declined to enforce a two-year post-employment restraint on a hairdresser, finding it excessive and detrimental to the employee’s ability to earn an income.

Allied Express Transport Pty Ltd v Braim [2022] NSWSC 1298

In this case, Allied Express Transport Pty Ltd sought to enforce a 12-month restraint.This case underscores the burden on employers to justify the reasonableness of restraints.
Outcome: The Court dismissed the application, holding that Allied Express failed to prove the restraint was reasonably necessary for the protection of its business interests.

Drafting Effective Restraint Clauses

To enhance enforceability:

  • Tailor the Clause: Customise the restraint to the specific role and responsibilities of the employee.

  • Define Scope Clearly: Specify the activities, duration, and geographical area covered.

  • Use Cascading Clauses: Include multiple restraint periods and areas to allow courts flexibility in enforcement.

  • Regular Review: Update clauses to reflect changes in business operations and legal standards.

Federal Government Proposal to Ban Unfair Restraint of Trade Clauses

In early 2024, the Australian Federal Government signaled a major shift in employment and competition law by proposing to prohibit unfair non-compete clauses in employment contracts, particularly where such restraints are used in low- and middle-income roles without sufficient justification.

The proposal, set out in consultation papers released by Treasury, aligns with global trends seen in countries like the United States, where similar reforms have gained traction. The government is exploring legislative reforms under the Competition and Consumer Act 2010 (Cth) to better regulate restraint clauses that are deemed anti-competitive or unnecessary for the protection of legitimate business interests.

Key Aspects of the Proposal:

  • Ban on non-compete clauses that unreasonably limit a worker’s right to change jobs or start a business.

  • Focus on low-paid and middle-income earners, where restraint clauses often have little practical justification.

  • Employers will need to demonstrate clear, legitimate interests, such as access to confidential information or genuine risk of client poaching, to justify restraints.

  • The reform may extend to non-solicitation clauses, training repayment agreements, and overly broad confidentiality clauses.

What It Means for Businesses

If implemented, the new law could invalidate many restraint clauses currently used in standard employment contracts. Employers will need to reassess and potentially redraft their agreements to align with the upcoming regulatory standards. Businesses will also need to consider alternative protection methods, such as stronger confidentiality clauses, performance incentives, and robust onboarding/offboarding procedures.

This development demonstrates the importance of staying ahead of legislative changes and ensuring all contractual restraints are not only legally sound but also commercially justifiable.

Conclusion

Restraint of trade clauses are vital tools for protecting business interests but must be crafted with precision and fairness. Recent developments in Australia highlight the judiciary’s focus on the reasonableness and necessity of such clauses. Businesses should regularly review and tailor their restraint clauses to align with current legal standards and ensure they effectively safeguard their interests without imposing undue restrictions on individuals.

Schedule a Free Consultation

Are you facing challenges with drafting or enforcing restraint of trade clauses in your business agreements? Whether you’re dealing with departing employees, protecting client relationships, or purchasing a business, the stakes are high—and mistakes can be costly. At Odyssey Legal, our commercial litigation experts offer tailored, strategic advice to ensure your restraint clauses are both enforceable and effective.

Take the guesswork out of your contracts and safeguard your commercial interests today. Book your free 15-minute consultation with our legal team and gain the clarity and confidence you need to move forward. No obligation—just solid, professional advice from legal experts who understand the intricacies of Queensland law and national best practices.

FAQs on Restraint of Trade Clauses

1. Are restraint clauses enforceable in Australia?
Yes, if they are reasonable and protect legitimate business interests.​

2. What makes a restraint clause reasonable?
Factors include the necessity to protect business interests and the clause’s scope, duration, and geographical reach.​

3. Can a restraint clause be too long?
Yes. Excessively long durations may render the clause unenforceable unless justified by significant business interests. 

4. Are restraint clauses applicable to all employees?
Not necessarily. They are more commonly enforced for employees with access to sensitive information or client relationships.​

5. What happens if a restraint clause is deemed unreasonable?
Courts may sever the unreasonable parts or declare the entire clause unenforceable.​

6. How can businesses ensure their restraint clauses are enforceable?
Seek legal advice to draft clauses that are specific, reasonable, and tailored to protect legitimate interests.


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