Can Your Employer Stop You Working for a Competitor? Restraint Clauses Explained

Leaving a job should theoretically be straightforward: you resign, work your notice period and move on to your next opportunity.

For many employees, however, an old employment contract suddenly becomes very important when their employer points to a restraint of trade clause and says they cannot work for a competitor.

This can be particularly concerning for senior employees, executives and professionals who have spent years developing expertise in a particular industry. If most suitable employers are competitors of their current organisation, a broad restraint can appear to significantly limit their career options.

The important point is that the existence of a restraint clause does not automatically mean every restriction written into an employment contract will be enforceable.

What is a restraint of trade clause?

A restraint clause attempts to restrict certain activities after employment ends. Depending on the contract, an employee may be prevented from working for competitors, approaching former clients, soliciting colleagues or conducting business within a particular geographical area for a specified period.

Employers generally use these provisions to protect legitimate business interests, which might include confidential information, customer relationships and business connections.

Problems arise when employees assume that because they signed the contract, every aspect of the restraint must necessarily apply exactly as written.

The legal position can be considerably more complicated.

Can an employer stop you joining a competitor?

Potentially, but enforceability depends heavily on the circumstances.

Australian courts generally scrutinise post-employment restraints carefully. Whether a particular restriction can be enforced may depend on matters such as the employee’s position, access to confidential information, relationships with clients and the breadth and duration of the restraint.

A restriction applying to a senior executive with access to commercially sensitive information may be viewed very differently from the same restriction imposed on an employee with limited access to confidential material.

The wording of the particular employment contract and the law applying in the relevant jurisdiction are also important.

For that reason, employees should avoid assuming either that the restraint is definitely enforceable or that it can simply be ignored.

Be careful before accepting your next role

The best time to obtain advice about a restraint is usually before accepting employment with a competitor, rather than after your former employer threatens legal proceedings.

If you are considering changing jobs, locate your employment contract and review any provisions dealing with restraints, confidentiality and intellectual property.

It may also be possible to structure a transition in a way that reduces the risk of a dispute. For example, the concerns surrounding joining a competitor may be very different from those associated with immediately approaching the same clients you serviced in your former role.

Understanding those distinctions before making a move can save significant difficulty later.

Confidential information is a separate issue

Even where there are questions about whether a restraint is enforceable, employees should remain extremely careful with their former employer’s confidential information.

Client databases, pricing information, internal strategies, commercially sensitive documents and other confidential material should not simply be taken to a new employer.

Forwarding documents to a personal email account before resigning or downloading customer lists can turn an otherwise manageable employment transition into a serious legal dispute.

Leaving professionally and respecting ongoing confidentiality obligations is usually the safest approach.

What if your former employer threatens legal action?

Do not ignore the correspondence, but do not panic either.

A letter alleging breach of restraint does not necessarily mean court proceedings will follow or that the employer’s interpretation of the contract is correct.

Obtain legal advice quickly. Restraint disputes can move rapidly, particularly where an employer believes confidential information or important client relationships are at immediate risk.

Early advice allows you to understand the strength of the employer’s position and determine whether the dispute can be resolved before it escalates.

Changing jobs is a normal part of professional life, but restraint clauses can make the transition considerably more complicated.

At EAS Legal, we believe the best employment advice is often obtained before a dispute begins. Reviewing your contract before resigning or accepting a role with a competitor can help you understand the risks and make informed decisions about your next career move.

A restraint clause should never simply be ignored, but neither should you automatically assume that it prevents you from pursuing the next opportunity in your career.

Frequently Asked Questions