Restraint of Trade in Queensland
In Queensland, restraints of trade are stipulations in a written contract that purport to limit the ability of one of the contracting parties to trade. They’re particularly frequent in employment contracts for professionals or skilled workers who might interact with the employer’s clients or have access to trade secrets and other confidential information. Restraints of trade are also frequent in Queensland company sales contracts, preventing the seller from competing with the buyer.
Queensland, unlike New South Wales, does not have legislation dealing with trade restraint clauses. As a result, the concepts of restraints of trade in Queensland are governed by common law. Other legislation, such as the Competition and Consumer Act 2010, may have an impact on the restraint of trade clauses (to a limited extent).
Any properly drafted restraint of trade clause should only go as far as is reasonably necessary to safeguard the protected interest. As a result, if a restraint provision is “over the top” or “broad” and incorporates duties that are unneeded, it may be void and fail, at least in Queensland. Therefore, trade restraints must be carefully drafted to be reasonable in specifying restrained activities, a timeframe for the restraint, and a general area in which the restraint should apply.
The following are examples of common errors in the formulation of constraints in employment contracts:
- Having a restraint against contacting any “client” of the business after termination of employment, even if the employee has never dealt with them or even knows that they are a client.
- Having a restraint against doing any business with a client of the employer, rather than just business that might compete with that of the employer.
- Having a restraint against doing any business with a client of the employer, rather than just business that might compete with that of the employer.
- Having a restraint that is too broad, such as a restraint for the entire state of Queensland when the employee only ever dealt with clients in Brisbane.
- Having a restraint duration that is too long, such as a 6-month restraint in a business where the customer deals with the company several times per month.
- Having restrained activities that excessively obstruct the employee’s ability to earn a living.
It is customary for the constraints of trade to be drawn in a cascading form in contracts for the sale of businesses (or for the sale of shares where the company’s membership is being purchased). This usually consists of several separate activities that are integrated with several separate geographical areas and several separate durations, so that each is combined with the others as a separate restraint, with the intent that any that are too broad can be severed but the rest remain enforceable. There are literally dozens of different possibilities in some of the constraints drawn in this manner.
Other restraints, such as those found in a conventional Business Sale contract, are structured to allow the Buyer to unilaterally impose fewer constraints in order to retain a restraint that would otherwise fail.
Restraints in a business sale contract are more easily enforced because a seller of a business is receiving payment for goodwill – the same is true when shares in a business operating company are being sold. On the other hand, restraints on employees that hinder them from earning a living are frequently unreasonable and void.
Our Saines Legal business lawyers are familiar with restraints of trade and restraints against competition, and litigation relating to them. They’re also familiar with associated problems like employee and former employee duties due to corporations under the Corporations Act – which can act as constraints, especially when information is being used – and breach of fiduciary duties.
Why Is It Necessary to Have a Written Employment Contract?
A constraint must be reasonable in order to be enforced. What is reasonable in a case is determined by the facts of the case. However, what is unreasonable is a universal restriction against all employment with competitors. To execute a restraint, a former employer must be able to refer to a formal employment contract that specifies the restraint’s scope.
What Is Confidential Information?
Simply put, it’s information that isn’t ordinarily available to the general public. If information is to be kept private, it should not be made public. Employees are more than likely to encounter confidential information in the course of their work. Pricing schedules, client lists, and computer codes are all examples of sensitive information. An employer has a legitimate interest in safeguarding secret information such as pricing schedules, computer codes, client lists, and a supplier’s identity.
Does Working for a Competitor Mean I’m Going to Use Confidential Information?
No. Employees’ abilities and knowledge are strengthened because of their employment. The accumulation of years working in a field of interest, for example, may result in a rise in a person’s value in the labor market.
What Are the Types of Restraint of Trade Clauses?
Non-compete provisions: These clauses prohibit a person from competing with their previous employer for a set period, including starting their own business or working for a competitor.
Non-solicitation provisions: Such clauses prohibit a person from prospecting the clients of their former employer for a set period, which is frequent in sales roles.
Confidentiality clauses: restrict a person from using confidential information from previous employment.
Non-recruitment provisions: prohibit a person from recruiting previous employers’ employees for a set period.
A court may not enforce a restraint of trade clause if it is simply in place to shield the employer from ex-employee competition or to keep a valuable employee from being hired by someone else. As a result, the employer must be able to demonstrate that the clause is essential in the best interests of the organization.
