Gibson Sheat: Restraint of Trade Amendment Bill

8 May 2023

Restraint of trade clauses, also known as non-competes, are commonly used in employment agreements in many sectors, including sport and recreation. They aim to protect an employer’s interests by placing restrictions on their employees. Both employers and employees need to be aware of the impact of restraints of trade when an employee’s employment comes to an end.

A restraint of trade can restrict an employee from undertaking future employment by placing geographic, time and field of work restraints on the employee. For example, a restraint may state that on termination of their current employment contract, the employee may not practise in the same field within a five-kilometre radius of the location of their current employment for a period of 6 months. One of the effects of restraint is to limit the opportunity for employees to leave their current employer.

Currently, restraints of trade are only enforceable to protect the employer’s genuine proprietary interest. Enforcement can be costly and uncertain as courts may be reluctant to enforce. However, this could change if the Bill is passed.

The Bill proposes to:

make restraint of trade clauses of no effect unless the employee is earning over three times the minimum wage;
limit the use of restraints of trade to only those situations where the employer has a proprietary interest to protect;
force the employer to pay an amount not less than half of the employee’s weekly earnings when and while the restraint of trade is in place; and
limit the restraint of trade period to no longer than six months.

Employers should seek advice when reviewing their standard employment agreements to best protect their interests. Employees should also know their rights surrounding restraints of trade and consider the long-term effects that the employment agreements may have on them.

Gibson Sheat Lawyers is well placed to advise on your employment matters and restraint of trade clauses and to discuss the impact of the new Bill. Please contact us to obtain further information.