I’m looking for a new job, but my employment agreement includes a restraint of trade clause – what does that mean?

How many of us have accepted a job offer, received the employment agreement to peruse, only to notice that the agreement includes a restraint of trade clause? How many of us hold the belief that such clauses are not worth the paper they are written on? If you have held this belief, you are not alone. The legal position, however, is that restraint of trade clauses are enforceable, if it can be shown that the restraints are reasonably necessary.
What is a restraint of trade clause? Restraint of trade clauses are a common feature in employment contracts in New Zealand, designed to protect the business interests of employers by limiting the activities of former employees after their employment ends. These clauses aim to protect proprietary interests such as confidential information, trade secrets, and customer relationships. Restraint of trade clauses typically restrict former employees from engaging in specific activities for a defined period, such as working for a competitor, starting a competing business, or soliciting clients or employees from their previous employer.
Restraint of trade clauses in New Zealand generally fall into two main categories, namely non-compete and non-solicitation. Non-compete clauses aim to prevent an employee from working for a competitor or starting a competing business within a specified geographic area for a set period, while non-solicitation clauses aim to restrict the former employee from actively soliciting the employer’s clients, customers, or employees.
Are restraint of trade clauses automatically enforced? No. The onus is on the employer to pursue enforcement of a restraint of trade clause, if they have reason to believe that a former employee is in breach. The Employment Relations Authority or Employment Court will only enforce such a clause if the restraint is no wider than reasonably necessary in scope, duration and geographical limit. It is up to the employer to prove this.
In determining reasonableness, several factors are considered. These can include the employee’s role, as more senior employees who have access to sensitive information may justify stricter restraints. The duration of the restraint is also important, noting it is difficult to reasonably justify restraints that are longer in duration, for example exceeding six months. Any geographic restrictions imposed must also be relevant to the business’s actual area of operation. A restraint that spans the entire country may be considered unreasonable if the employer only operates in one region. The employer must also be able to show that the restraint is necessary to protect interests such as confidential information, client relationships, or proprietary knowledge.
When drafting restraint of trade clauses, employers should ensure they are reasonable and tailored to their specific role and business so to ensure they can be upheld. Employees should seek legal advice on these clauses before accepting any job offer, to understand the possible effect on any future career moves.

Schnauer & Co
1 Shea Terrace, Takapuna
09 486 0177
schnauer.com