A restraint of trade clause is one of the most misunderstood provisions in Australian employment agreements. Employers rely on these clauses to protect legitimate business interests, while employees are often left wondering whether the restriction they signed up to is actually enforceable. Understanding how a restraint of trade clause works, and when it will hold up in court, matters for almost every business and worker in Australia.

At Rose Litigation, we regularly advise both employers and employees on restraint clauses, non-compete clauses and related disputes. This article explains what these clauses are, how the courts assess them, and what recent reform proposals could mean for your business.

What Is a Restraint of Trade Clause?

A restraint of trade clause is a provision in an employment contract that restricts what a person can do after leaving a job. Restraint clauses commonly appear alongside non-compete clauses, non-solicitation clauses and non-disclosure clauses, and they can restrict a former employee from:

• Working for a competing business within a certain period
• Operating within a specific geographical area
• Soliciting clients or co-workers from their former employer
• Using confidential information or trade secrets gained during employment

The clause is designed to protect an employer’s legitimate business interests, such as client relationships, confidential information and intellectual property, once the employment relationship ends.

It’s worth understanding the difference between the related terms:

• A non-compete clause stops someone from working for a competing business
• A non-solicitation clause stops them from approaching former clients or co-workers
• A non-disclosure clause protects confidential information and other sensitive business information

All of these fall under the broader restraint of trade umbrella, and many employment agreements include several of them together

Are Restraint of Trade Clauses Enforceable in Australia?

This is the question we’re asked most often, and the answer isn’t a simple yes or no.

Under Australian common law, a restraint of trade clause is presumed void unless the business seeking to enforce it can show the restraint is reasonable in the circumstances. Courts don’t automatically enforce a restraint clause simply because both parties signed the contract. Instead, the party relying on the clause carries the burden of proving that it goes no further than necessary to protect a legitimate business interest.

This means a restraint of trade clause can be enforceable, but only if it’s reasonable and properly drafted. It also needs to be directed at protecting something the courts recognise as worth protecting, such as client relationships, trade secrets or confidential information. A clause designed simply to prevent competition, without a genuine business interest behind it, is unlikely to be enforced.

The Enforceability of Restraint of Trade Clauses: How Courts Decide

Australian courts weigh up several factors when deciding whether a restraint of trade clause will be enforced. The key question is always one of reasonableness: reasonable between the parties, and reasonable in the public interest.

1. Duration and Restraint Period

Courts look closely at the restraint period. A restraint that runs for a reasonable, clearly defined period is more likely to be upheld than one that extends well beyond what the role’s seniority can justify. The appropriate duration depends on the nature of the role, the seniority of the employee and how quickly the relevant business interest is likely to lose its value.

2. Geographical Area

A restraint that applies across a certain geographical area relevant to the business is more defensible than one that applies nationally or globally without a genuine commercial reason. If the business only operates in South East Queensland, for example, a restraint covering all of Australia is far less likely to be considered reasonable.

3. Scope of the Restricted Activity

The clause needs to restrict only what’s necessary. A restraint that goes further than protecting a legitimate business interest is more vulnerable to challenge, for example, one that prevents someone from working in an entire industry rather than a specific competing business.

4. The Nature of the Legitimate Business Interest

Courts will consider whether the restraint genuinely protects trade secrets, confidential information, client relationships or workforce stability, rather than simply shielding the business from ordinary competition. Unfair competition concerns alone won’t justify a restraint. There has to be a specific, protectable interest at stake.

5. Cascading Clauses

Because a court can find part of a restraint unreasonable while leaving the rest intact, many employment agreements now include cascading clauses. These set out a series of restraint options, for example, twelve months, then six months, then three months. If the longest period is found unenforceable, a shorter, more reasonable restraint can still apply. This drafting approach gives a restraint of trade clause a much better chance of surviving court scrutiny.

Reform on the Horizon: Job Mobility and the Fair Work Act

Restraint of trade law in Australia has been under active review. The Federal Government’s broader competition review has examined whether non-compete clauses are restricting job mobility and wage growth. This is a particular concern for lower and middle-income workers, who may have limited bargaining power when negotiating employment agreements.

Proposals under consultation include moving to ban non-compete clauses for workers below a proposed high-income threshold, and introducing greater transparency around restraint clauses at the point of hiring. This mirrors international developments. The US Federal Trade Commission previously pursued a rule that would have banned non-compete clauses for most American workers, a move that sparked significant debate and legal challenges in the United States. In Australia, any reform is likely to work alongside, rather than replace, the existing Fair Work Act framework and common law principles.

On some estimates, almost half of the restraint clauses currently in use apply a blanket restraint regardless of a worker’s seniority or income. This means many Australian businesses may need to reconsider their drafting approach if these proposals proceed. Employers who rely heavily on non-compete clauses to protect their workforce and client base should treat this as a live area of concern and seek advice on how any changes could affect their existing employment agreements.

What This Means for Employers

If your business relies on restraint clauses to protect client relationships, trade secrets or other confidential information, it’s worth reviewing your current employment agreements. In practice, a well-drafted restraint of trade clause means:

• Setting a restraint period that reflects the seniority of the role, not a standard twelve-month default.
• Limiting the geographical area to where your business actually operates.
• Framing the clause around a specific, identifiable interest, such as a client list or confidential process, rather than competition in general.
• Using cascading clauses so a court can still enforce a shorter restraint if the primary period is challenged.
• Pairing the restraint with non-solicitation and non-disclosure clauses for layered protection.

Employers should also stay across the consultation process on non-compete reform, as any changes to the law could affect the extent to which existing restraint clauses remain enforceable. Treat any restraint clause as a document that needs regular review, not something to set and forget.

What This Means for Employees

If you’re subject to a restraint of trade clause and considering a move to a competing business, it’s important to get advice before you resign or start a new role. Not every restraint clause will be enforced. The reasonableness of the restriction depends heavily on your specific circumstances, including:

• Your seniority
• Your access to confidential information
• The length of the restraint period
• The geographical area it covers

Acting without advice can expose you to unnecessary risk, including potential court action from a former employer. Understanding your position early gives you clarity and confidence about your options.

Restraint of Trade Clauses – FAQs

Speak With an Experienced Litigation Lawyer

Restraint of trade disputes sit at the intersection of contract law, employment law and commercial strategy. You might be an employer looking to protect your business, or an employee trying to understand your obligations. Either way, the enforceability of a restraint clause always comes down to the specific facts and circumstances.

Our experienced team at Rose Litigation provides strategic advice to help both businesses and individuals understand their options and determine the best way forward. If you have a question about a restraint of trade clause, non-compete clause or any related employment agreement, request a consultation with our team today.

The content of this publication is intended to provide a summary and commentary only. It is not intended to be comprehensive nor does it constitute legal advice, and has been prepared based on applicable legislation and case authority at the date of publication. You should seek legal advice on specific circumstances before taking any action.