When an ex-employee goes to a competitor or starts poaching clients or staff, employers often look to a restraint of trade clause to protect key business assets such as client relationships or company confidential information.

Often a quick decision needs to be made: apply to the Court to stop the ex-employee, or wait and sue for breach of contract damages at some later time. Wrapped up in this decision is the important issue of prospects of success – an employer will want to know there is a good chance of a successful outcome.

Whilst there is a general perception that restraints of trade are difficult to enforce (some lawyers even hold the blanket view that they are never enforceable) the only empirical study of Australian court judgments (Chia and Ramsay, 2016), which looked at all restraint of trade cases that went to final court determination in the period 1989 to 2012, found that the outcome across all cases in Australia in that period was:

  • The Court enforced the restraint 46.2% of the time
  • The Court found the restraint valid 17.2% of the time, but did not make enforcement orders (usually because the Court found no breach of the restraint or the employer suffered no damage)
  • The Court found the restraint invalid 36.5% of the time

The State/Territory breakdown found that NSW had the highest enforcement success rate (56.1%) whilst Victoria had an enforcement success rate of 30.7% and a finding that a restraint was valid (but not enforced) of a further 15%, meaning that the Court ruled the restraint invalid in 53% of cases.

Enforcing restraints of trade
Enforcement of restraints of trade in New South Wales and Victoria

There are at least a couple of reasons why NSW has a higher enforcement rate than Victoria. First, there is specific legislation in place that empowers a court to construe and read down a restraint that is excessive to reduce its operation to that of a reasonable protection, so long as that protection is within the confines of the restraint agreed between the parties. There is some qualitative evidence (Arup et al., 2013) to suggest that NSW is being nominated as the jurisdiction governing the contract to take advantage of this legislation. Second, NSW is a bigger State than Victoria with more employees, and the financial services and insurance industries, which are over-represented in restraint cases, are larger in NSW and hence generate more litigation.

I suspect these numbers – Australia wide and State by State – show odds of success that are much higher than is the general perception.  These aggregate numbers also leave out successful settlement negotiations prior to trial – it is not uncommon to agree a fresh restraint by consent, or some other compromise, rather than proceeding to final hearing.

The best decisions, including whether to start a legal action or not, are made by combining human expertise, experience and instinct, and objective data. The human experience allows us to weigh complex trade-offs and risks in pursuit of an objective. The objective data helps us to make decisions free of biases, many of which are subconscious.

Of course, every case is different and success in any individual matter has many essential ingredients. This aggregate data is useful in that it shows that an ex-employee’s restraint can be an effective tool to protect business assets. It is always a matter of ensuring that the essential ingredients, covered in other blog posts are present.

An enforceable restraint of trade can be a key business asset, giving an employer time to recover when a senior employee has left the business for a competitor. Like a good insurance policy, it’s a big relief to have it when you need it.

Australian law regarding restraints of trade has its history in 19th Century England and the prevailing concerns of that time.  Of course the law has developed incrementally since then. However, by and large, an employee restraint protects certain interests within defined geographical boundaries such as a city, state or country.  This made sense in a bricks and mortar world of commerce, but how can employers protect their interests in the modern digital economy?

We have worked with a range of clients to protect their interests across borders. Novel thinking is required to draft employment restraints so that they are effective within the established legal framework.  Our Australian Partners have litigated hundreds of restraint of trade cases and have developed a deep understanding of the issues and what it takes to win.  We share some thoughts below:

1. Ensure restraints protect the right cyber micro-markets

Cyber-markets can be broken down into many possible divisions: by country location, product or service, individual seller/retailer website, personal characteristics of the consumer (age, gender, occupation, hobbies) among other things. What this means is there are sections within any market which a departing employee may lawfully target which will not affect an employer’s current business.  Say, for example, an employer operates an online gambling business for rugby and AFL which serves clients in Australian capital cities but does not offer services for online horse racing in the UK.  A departing employee might be able to set up a competing website, also operating geographically from Australia, to offer online gambling in UK horse racing. The cyber micro-markets are different, so the two companies are not competing in that market.  But there is room for a restraint to work in areas of overlap subject to the terms of the restraint covering the correct cyber micro-markets.

2. Confining an employer’s cyber-trade interest to its client list

Where an employer provides a range of services in a cyber micro-market, the most efficient and clear way to protect its interests – for example, the legitimate interest of client connections, may be naming particular clients in a market, along with other appropriate terms.  This type of drafting can be effective to protect relationships built with particular clients situated within defined boundaries.

3. Enforcing cyber-market restraints where an employee engages in cyber-trading within the boundaries of an enforceable geographic restraint

Essentially, this means that an employer who reasonably restrains employees by geographical restraints is to be entitled to have this capture cyber-business within the geographical restraint.  For example, an employer can protect its interest in client connections regarding their telemedicine counselling services provided to public and private hospitals in, say, Sydney and Melbourne against former employees providing competing services to customers in these locations for a certain period of time, but would not be entitled to restrain a former employee from providing the same services to patients in aged-care homes in Perth, Adelaide or the United States.  A restraint will be effective so long as it is well drafted and ensures that providing services to clients through the internet within this geographic boundary is prohibited.

The above framework for drafting restraints supports the following public policy benefits:

  • ensuring a level of trade and (not unfair) competition while offering reasonable protection of an employer’s legitimate interests; and
  • allowing markets to grow and prosper for the benefit of consumers.

Keep enforcement front of mind where cross-border litigation is a possibility

 A cyber-restraint, like the internet itself, is a global construct.  But courts are country and state based and their jurisdiction is usually limited by geography.  That made sense when most trade was local but can be problematic when trying to enforce a restraint across borders.

A 2017 decision of the Western Australia Supreme Court provides an example.  Naiad, a U.S. employer sought an interlocutory injunction to restrain a defecting employee from operating a competing business in Western Australia. After grappling with the applicable law and jurisdiction, the Court concluded that the reasonableness of the restraint was governed by US (Connecticut) legal principles (given particular terms of the contract) but the grant of an injunction was governed by Western Australian law.

The situation is complicated because some countries (for example, Australia and the United Kingdom) have arrangements in place to recognise each other’s Court judgments and orders meaning that international litigation encounters less problems.  But this is not so as between many other countries.  The upshot is that it is important to consider how a restraint term will be enforced up front. Otherwise, there may be a right but no real way to achieve a remedy.


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An enforceable restraint of trade can be a key business asset. Some might think about it as an insurance policy. The capacity to preserve customer connections, protect confidential information and discourage key executives from setting up their own business or moving to a competitor can be critical to information rich businesses operating in a competitive market.

This is the case now more than ever given that the Supreme Court of Victoria’s decision in Just Group Limited v Peck [2016] VSC 614 (later affirmed on appeal) has arguably raised the bar for correctly drafting an effective restraint.

As we pointed out in our second blog piece on post-employment protections, ensuring the currency of your restraint provisions is an important exercise in risk management.

This success can be attributed to the practice of regularly revisiting the questions of which key executives or employees should be subject to restraints, and how those restraints should operate. The yearly promotion, pay rise or management re-shuffle cycles are perfect opportunities to update restraint provisions. Often, this is when operational changes (such as the make-up of roles) become effective, so restraints can be tweaked to align with these changes. A promotion or pay rise can be tied to a new contract or restraint provision. Instead of adopting a one-size-fits-all approach when an employee first joins the business, employers can increase the likelihood that a restraint will be enforceable by showing it was the subject of specific negotiation during the employment.

Experience in this area reveals one key distinction which separates cases where restraints are successfully upheld and those where compromise outcomes are achieved. In successful cases, typically, the restraint provision has been drafted neatly around the key protectable interests. When seeking to enforce a restraint, an employer will be required to show there is a protectable interest capable of supporting the restraint. This is the first limb of the test for enforceability. The scope, duration and geographical operation of the restraint are logically tied to the protectable interest (see our map below). An employer will need to make out each of these elements to meet the second limb of the test.

Post-Employment Protections Legal Dimension – Map

If the restraint then needs to later be relied upon down the track, the employer has the benefit of a provision which protects a current business asset (e.g. key connections with important customers or suppliers who the employee is in contact with) this is likely to be enforceable in court. If the opportunity to update a restraint has been missed, it may be necessary to try to force fit the facts into a restraint that might have been drafted years earlier in a very different business context – for example, when the employee was performing a different role. This can increase the degree of difficulty when enforcing a restraint.

Although courts will give employers some latitude – because the reasonableness of a restraint is judged at the time it was entered into – that latitude is limited. Regular housekeeping means that it won’t be necessary to call on this latitude because the restraint is fit for its purpose, and enforcement proceedings can be approached with confidence.

Doing this work inevitably pays dividends over the long term. Preparing an effective restraint is similar in concept to buying an insurance policy. You hope you won’t have to call it in. But if you do need to call on it, you are very glad you have it. The past decision to do the work inevitably looks very wise.


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Recently a number of stoushes about the enforcement of post-employment restraints of trade – including one that captivated the legal industry for many months last year – have played out publicly.

Their high profile nature means it is timely for big business to re-evaluate their restraints of trade to make sure they are effective – emphasised by the fact we are seeing movement in many industries (including the legal industry) picking up pace as teams relocate as a result of mergers and the continued impact of globalisation.

Restraint of trade provisions are common in many employment contracts, but whether or not a business takes steps to hold an outgoing employee to account is a different question. This can be for a range of reasons – for example, not wanting to be the “bad guy”, or where the relationship has fractured to a point where culturally, both parties are happy to move on.

But more commonly, it comes down to the fact that when the rubber hits the road, a closer inspection of the applicable restraints shows that the business doesn’t have a good case to enforce the restraints or that – even if they are enforceable – they don’t give the business the protection it really needs.

There are 3 key strategies to increase the chances that your restraints are effective – keeping you out of court and off the front pages:
  1. tailor your restraints to your business and to the employee – the cases highlight that restraints should be designed carefully to reflect what is actually important to the business and the job of the particular employee. While there is a superficial attractiveness to broad restraints, you need to think about what aspects of the employee’s role justify restricting them in some way after they leave – the courts don’t often like boiler-plate or broad-brush provisions to which no thought has been given.
  2. don’t be blinded by love – we all know the feeling of meeting someone new, making a connection, and thinking about how great your lives will be together. We ignore the faults that stare our friends in the face – because we can’t possibly think of how the relationship would ever turn sour. When it comes to recruitment, that applies too. You should very carefully consider any employee’s request to delete or modify key aspects of the restraint provisions (including, for example, reducing restraint periods, or waiving restraints if certain things happen) – because we all know some relationships just don’t last.
  3. re-evaluate contracts during the employment relationship – you would expect productive and valuable employees to progress and succeed in your business. However, promotions – and particularly senior promotions – often mean the employee has increased access to confidential information/business strategies, key clients/customers and talented fellow employees. Consider promotions as a good opportunity to look carefully at whether the existing restraints are sufficient to protect the company’s interests – it might be worth issuing an updated contract with new restraints at that point.

All our tips on restraints can be found here, along with our map of Post-Employment Protections.


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When a key employee subject to an employment restraint leaves a business to join a competitor, fast decisions need to be made to protect client goodwill or guard against misuse of confidential information.

The more leverage an employer has against the former employee and his or her new employer, the better the prospects of negotiating a sensible solution quickly or, failing that, taking successful legal action. Continue Reading Leveraging employment restraints to protect business assets

An enforceable restraint of trade can be a key business asset. Or some might think about it as an insurance policy. The capacity to preserve customer connections, protect confidential information and discourage key executives from setting up their own business or moving to a competitor can be critical to information rich businesses operating in a competitive market.  As we pointed out in our second blog piece on post-employment protections, ensuring the currency of your restraint provisions is an important exercise in risk management.  Continue Reading The difference between winning and losing restraint litigation is often good housekeeping

Following on from our first blog on post-employment protections, we will now look at the different types of restraint, and work through a checklist of questions employers should ask themselves when drafting a restraint to make sure it’s the right fit. Continue Reading Drafting and litigating post-employment restraints – Tailoring your restraint to ensure the right fit

Drafting and enforcing post-employment restraints has a lot in common with good medicine. It is necessary to prescribe only the “minimum effective dose” – the amount of medication to produce the desired outcome with minimum side effects. Draft a post-employment restraint too narrowly, and it provides no remedy. Draft a restraint too broadly, and toxicity sets in – it won’t be enforceable.

In our series of post-employment protection blog pieces, we will tackle each of the main legal and commercial issues involved in drafting and litigating post-employment restraints and unpack our Post-Employment Protections Legal Dimension map. We will examine best practice approaches and the tactical issues that need to be thought through.

Continue Reading Drafting and litigating post-employment restraints – Prescribing the “minimum effective dose”

On 12 December 2013 Seyfarth Shaw announced our Australian offices were officially open for business. Today marks five years since those doors opened.

What better way to reflect than to ask ourselves, what have been the biggest changes in our specialist areas of law over those five years?

“It has become increasingly difficult to make enterprise agreements that are compliant, genuinely enterprise-focused and fit for purpose due to increasing modern award complexity combined with the unworkable approach adopted in decisions of the Fair Work Commission and Federal Court to the BOOT and other procedural aspects of agreement making.”
– Rachel Bernasconi

“Over the past five years, I have observed the tension between sharing improved safety lessons and legal risk. I am concerned about compounding this potential unintended consequence with the rise of the industrial manslaughter offence.”
– Paul Cutrone

“I think the biggest development in employment and industrial law is how courts and tribunals are grappling with modern expectations of what ‘working’ looks like. This means they are looking at how to deal with the gig economy, flexible working arrangements (including working from home and telecommuting), employees wanting lengthy periods away from work and ‘portfolio’ careers. There is a real tension as employers seek flexibility to ensure customer demands are met while balancing the costs of labour vs employee representative groups seeking to pull the other way, seeking automatic casual conversion rights and laws that treat gig workers as employees. The next five years will see this tension play out in the policy debate.”
– Ben Dudley

“The most significant change I have seen is increasing employee mobility. Employees of large international organisations are spending more time on assignment in locations throughout the Asia Pacific, on both a short-term and long-term basis. We see this occurring as a result of organisations expanding their operations throughout the region. Employers are increasingly seeking specialist employment advice on both a single jurisdiction and multi-jurisdiction basis, including to confirm compliance with new frameworks and to ensure the appropriate arrangements are in place.”
– Luke Edwards

“The last five years has cemented a realisation that has been brewing for the last ten years. Enterprise bargaining amidst the current regulatory environment has reached its use-by date for many employers. Enterprise bargaining is no longer an opportunity to secure win-win outcomes but rather a process aimed at reducing the risk to on-going operations.”
– Chris Gardner

“There has been a shift away from spending money on large, wordy paper systems written by lawyers. I question whether anyone is any safer once they are developed. Smart organisations are investing heavily in understanding their key risks, controls and testing the effectiveness of those controls. This is where their efforts need to be.”
– Jane Hall

“One of the most significant developments I have seen in the last five years is the rise in the influence of workplace regulators. Consistent with the overall dynamic facing corporate Australia, we are seeing far more active, better resourced and assertive regulators across various workplace issues. The environment is one of heightened focus on compliance with workplace and safety laws; the financial and reputational stakes are higher than ever for employers who fall short.”
– Darren Perry

“Over the past 5 years, we have seen a number of areas where our Fair Work Commission cannot speak with one voice. While many parts of its jurisdiction have been affected, it is most noticeable in individual claims. How the Fair Work Commission balances even very serious conduct against mitigating factors remains unpredictable and has resulted in flip-flopping which creates ongoing uncertainty. This is costly and time consuming. Faced with cost and uncertainty we are seeing our clients feel pressure to settle rather than defend a sound and rational decision to uphold reasonable standards of conduct. The absence of clear statements of principle from the Fair Work Commission (such as we had in the past) and its increasingly subjective approach creates uncertainty, inefficiency and unfairness of a different kind.”
– Henry Skene

“The changes have been many and varied. What I am seeing is increased competition across a number of industry sectors, which means there is a war to retain and protect the most talented staff, who are the engine of the business. This has led to a big uptick in restraint of trade work – a highly specialised area which can be compared to a game of chess. We are passionate about this area of law and have built a specialist service model that in our opinion is market leading – whether it be getting into court within a matter of days when necessary, to defending applications for injunctions or damages. Our clients recognise that a good restraint is a business asset, and invest accordingly.”
– Michael Tamvakologos

On behalf of the team, we would like to thank the truly valued supporters of Seyfarth Shaw in Australia. We are excited to continue to work with you into 2019, and beyond.


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