Employment Restraint - What determines if a restraint clause is enforceable?
The law in Australia that deals with employment restraint clauses is primarily the common law, which is the body of law developed by the courts over time through their decisions in similar cases.
In addition to the common law, each Australian state and territory has its own legislation that may apply to employment restraint clauses. For example, in New South Wales, the Restraints of Trade Act 1976 (NSW) deals with restraint of trade clauses in contracts, while in Victoria, restraint clauses in employment contracts are governed by the Fair Work Act 2009 (Cth) and the Competition and Consumer Act 2010 (Cth).
The courts in Australia will typically apply the common law principles developed through case law to interpret the validity and enforceability of restraint clauses in employment contracts. However, the specific legislation in each state or territory may also provide guidance on the requirements for restraint clauses to be valid and enforceable.
Generally speaking, the law in Australia that deals with employment restraint clauses is complex and varies depending on the specific circumstances of each case and the legislation applicable to the relevant jurisdiction.
In Australia, the enforceability of a restraint clause, which is a clause in an employment contract that seeks to restrict an individual's freedom to compete with a former employer, or solicit the former employer’s clients or working for a competitor of the former employer after leaving that employer’s employment, depends on several factors.
The courts consider the following factors when determining whether or not a restraint clause is enforceable against a former or current employee. This is in no way an exhaustive list and other factors may be deemed relevant in any particular case:
Reasonableness: The restraint clause must be reasonable in terms of its duration (time), geographical scope (area), and the type of activities (act or work) it seeks to restrict. The restraint should only be necessary to protect the legitimate business interests of the employer, such as confidential information, trade secrets, and customer connections.
Protection of legitimate business interests: The restraint clause must be designed to protect the legitimate business interests of the employer. If the restraint is broader than necessary to protect the employer's interests, it may be considered unreasonable and unenforceable.
Public interest: The restraint clause should not be contrary to the public interest. The courts will not enforce a restraint that unfairly restricts competition or prevents individuals from earning a livelihood.
Bargaining power: The restraint clause must be agreed upon by the parties with equal bargaining power. If one party has significantly more bargaining power than the other, the restraint clause may be considered unconscionable and unenforceable.
No undue influence: The restraint clause should not be entered into as a result of undue influence or duress. If a party is coerced into accepting the restraint clause, it may be considered invalid and unenforceable.
So in summary, the enforceability of a restraint clause depends on the specific circumstances of each case and the above factors. It is advisable to seek specialist legal advice before entering into an employment contract with a restraint clause or attempting to enforce one.
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