Signed a restraint clause? What it can and cannot stop you doing

A ban on most non-compete clauses is on the way, but millions of workers are bound by restraints right now. Here is how the courts treat them today, and why many are weaker than they look.

Canberra's draft law to ban non-compete clauses for workers earning under $190,100 will not take effect until after it passes Parliament, and it is not designed to wipe out every existing clause at once. In the meantime, the clause in your contract is judged by long-standing rules developed by the courts. Those rules are less friendly to employers than most employees assume.

Not automatically. Australian courts start from the position that a restraint of trade is against public policy and void, unless the employer can show two things: that it protects a legitimate business interest, and that it goes no further than reasonably necessary to protect it.

The first test knocks out a lot of clauses. "Competition alone is not a 'legitimate business interest' of an employer," lawyers Martin O'Connor and Brandon Chakty of Addisons have written. Courts generally recognise three interests worth protecting: confidential information, relationships with clients and customers, and the stability of the employer's workforce. A restraint that simply stops you working in your field, without protecting one of those, is unlikely to stand.

Courts look at what activities are restricted, for how long and over what area, how senior you were, and how much your role depended on personal relationships with clients. A two-year restraint on a junior staff member with no client contact is much harder to justify than a six-month restraint on a senior salesperson who was the face of the business to its biggest accounts.

It is a restraint written as a menu. Instead of a single period and area, it lists several, such as 12, 6 or 3 months across Australia, the state or the city, in the hope that a court will enforce at least one combination if the widest is struck out.

Courts have accepted cascading clauses in principle, but not without limit. In Austra Tanks v Running (1983), a clause producing 82,152 possible combinations was rejected. In a 2014 Tasmanian case, Bulk Frozen Foods v Excell, a clause with 8,019 combinations survived. The more permutations, the greater the risk the clause fails for uncertainty.

Yes. New South Wales has a law, the Restraints of Trade Act 1976, that lets its Supreme Court read down an excessive restraint to something reasonable rather than strike it out. In Industrial Rollformers v Ingersoll-Rand (2001), a five-year worldwide restraint was cut to nine months within Australia. Elsewhere, courts generally cannot rewrite a clause, although cascading drafting is designed to achieve a similar effect.

Read the clause closely. Many restrain specific activities, such as approaching former clients, rather than working for a rival at all. Remember that an employer has to go to court to enforce a restraint, which is expensive and uncertain. Separately, obligations not to use or disclose confidential information apply whatever the restraint says. If the stakes are high, get advice from an employment lawyer before you resign.

Under the exposure draft, non-compete clauses will be banned for employees earning at or below the high-income threshold, and clauses stopping you from poaching former co-workers will be banned for everyone. Protections for clients and confidential information will remain.

Many restraint clauses rely more on intimidation than on law, but treating them all as bluffs would be a mistake. A narrow, well-drafted clause protecting genuine client relationships can and does get enforced, particularly in New South Wales. The honest position is that most young workers on ordinary salaries face restraints that would struggle in court, and the coming ban will make that official. If you are weighing a move, the clause should shape how you leave, which clients you contact and what you take with you, far more than whether you go.