Understanding Restraints of Trade in Australia: Legal Position and Practical Insights

In a competitive market, protecting your business interests is vital—but how far can you go without crossing the line?

Whether you're an employer, investor, or business owner, restraint of trade clauses often play a key role in safeguarding goodwill, client relationships, and confidential know-how. But under Australian law, not every restraint is enforceable—and the line between protection and overreach can be thin.

Let’s break it down.

What Is a Restraint of Trade?

A restraint of trade is a contractual clause that seeks to limit someone’s ability to work or operate within a particular field, industry, or location—usually after employment ends or a business is sold.

But here’s the catch: under common law, all restraints are presumed void unless they are shown to be:

• Protecting a legitimate business interest

• Reasonable in duration, scope, and geography

Where Are Restraints Commonly Used?

1. Employment Contracts

Used to prevent ex-employees from joining competitors, soliciting clients, or poaching staff. Courts scrutinise these clauses closely—especially for junior staff or generic roles.

2. Business Sale Agreements

More enforceable here. Why? Because the seller is being paid for the business’s goodwill and shouldn’t compete against what they’ve sold.

3. Partnerships & Franchises

Generally upheld if they protect shared brand value, intellectual property, or investment—provided the restraint is commercially justified.

Practical Tips for Drafting and Enforcing Restraints

Here are five essentials for ensuring your restraint clauses stand up in court—and in practice:

Be Specific: Avoid generic or copy-paste clauses. Tailor the restraint to the employee’s actual role and risks.

Use Cascade Clauses: These provide multiple fallback positions (e.g. 3, 6, 12 months), allowing courts to enforce the most reasonable version.

Document the Rationale: Keep internal notes on why the restraint is needed—such as access to trade secrets, strategic plans, or customer relationships.

Avoid Overreach: Courts won’t enforce clauses that feel punitive or disproportionate to the risk.

Act Quickly if Enforcing: If you plan to enforce a clause, don’t delay. Delay can weaken your position and undermine urgency.

Enforcement in Practice

Australian courts do uphold well-drafted restraints—but only if they are reasonable and necessary. Overly broad or vague clauses are regularly struck down. It’s about balance, not blanket control.

Most disputes are resolved through injunctions, often in the early days after someone departs. So, timing and preparation matter.

Final Thoughts

Restraint of trade clauses are powerful tools—but only when used wisely. They must be strategic, not standard, and part of a broader plan to protect your commercial edge.

Tip for Businesses: Review your restraint clauses regularly—especially after promotions, restructures, or acquisitions. What was “reasonable” two years ago may not hold today.

Tip for Employees: Before signing, understand what you’re agreeing to. A post-employment restraint could limit your next move more than you think.

Have questions or experiences with restraints of trade in your sector? Let’s connect and discuss.

Disclaimer: This post is for general information only and isn’t legal or professional advice. While care is taken in its preparation, I make no warranties as to its accuracy or completeness. By reading it, you agree not to rely on it without seeking your own advice and to release and indemnify me from any resulting claims or losses. For advice specific to your circumstances, please consult a qualified professional.