Restraint of trade clauses

It is common for employers to include a restraint of trade clause in an employment contract. These restraints can prevent an employee from soliciting the employer’s customers or working for a competitor following the end of their employment. 

If an employee breaks a restraint of trade clause, this enlivens the issue of enforceability. To enforce a restraint of trade clause, the following elements must be met: 

1. The employer must have a legitimate protected interest. 
2. The restraint must be reasonable for protection of that interest, as to area and time. 
   

In a recent decision involving Employsure Pty Ltd (“Employsure”), the New South Wales Supreme Court partly upheld a restraint of trade clause applying to David McMurchy. The latter was a senior manager of Employsure, an industrial relations advisory business. In December 2020, Mr McMurchy purported to resign from Employsure before commencing work with Elmo Software Ltd (“Elmo”) the next month; despite the employment contract preventing him from working for a “competing business” for a 12-month period from the end of the employment. On judgement, His Honour held in favour of Employsure, finding Elmo to be a competitor and a 9-month restraint as reasonable.  

NECA members are encouraged to examine their restraint of trade clauses in all current employment contracts – especially for senior employees – before seeking advice on their adequacy and enforceability. 

Employsure Ltd v McMurchy; Employsure Ltd v Kumaran [2021] NSWSC 1179 (17 September 2021).

Disclaimer: This summary is a guide only and is not legal advice. For further information on restraint of trade, call NECA Legal (WA) Pty Ltd on (08) 6241 6129 or email necalegalwa@ecawa.org.au.