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Thursday, 29 July 2010 |
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Contractor's legal guide - restraint of trade
Wednesday, 4 June 2003
A restraint of trade clause is used to restrict the future business activities of people who sell businesses and employees. In relation to employees such clauses are much more likely to fail.
A restraint of trade clause will fail when:
- It is unreasonable;
- It is too wide - worldwide and unlimited duration are frequent indicators of a clause that will fail.
- The employee is not compensated for the restriction in some form.
A sample clause is (and that is not to say that this clause is valid):
(a) Restraint Period means the period commencing on Employee’s employment by Employer and terminating six (6) months after Employee’s employment with Employer ceases;
(b) Employee undertakes during the Restraint Period not to, directly, indirectly, on its own account or as an agent, partner, director, or employee of any other entity,
(i) solicit or transact business with any of the entities with which Employee was materially involved with during Employee’s employment;
(ii) be employed by or employ or enter into partnership with any person who was, during Employee’s employment, an employee or director of Employer or any of its associated companies and shall not solicit, entice or procure any such other person to leave the employment of Employer or do anything which if done by the former employee or director would be a breach of this Agreement.
(c) Employee undertakes during the Restraint Period to ensure that no related entity of Employee shall engage in the conduct referred to in subclause (b).
This information is provided courtesy of White SW Computer Law
White SW Computer Law (wcl@computerlaw.com.au)
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