A Bill is currently before Parliament seeking to restrict the use of restraints of trade in employment agreements.
A restraint of trade in an employment agreement seeks to stop a former employee from carrying out certain activities after their employment has ended. The purpose is to protect the interests of the former employer.
There are two types of restraint of trade provisions that are commonly used. These include:
As it stands, restraints of trade are not enforceable straight off the bat and rather, they must be established as ‘reasonable’ to be enforceable. Otherwise, they may act as nothing more than a deterrent. However, since it can be very expensive to challenge a restraint of trade provision in the Employment Relations Authority or a court, many employees in lower paid work choose to abide by the restraint without testing its enforceability first. The Bill suggests that this can result in employees potentially missing out on jobs with competitors with more pay and better conditions, or it can stop them using their skills to start their own business.
The Bill (in its current form) seeks that a restraint of trade will have no effect unless the employee’s average weekly earnings exceeds three times the minimum wage rate and the employer has a proprietary interest to protect.
Based on the current minimum wage rate, this would mean that an employee would need to earn no less than $63.60 per hour ($132,288 gross per annum) to have a restraint of trade in effect.
The Bill also seeks that:
The Bill will now move into its first reading and no doubt people will be interested in its progress (which you can keep up with here). In any event, this is a timely reminder that the inclusion of any restraint of clause must be carefully considered to ensure enforceability.
 The Employment Relations (Restraint of Trade) Amendment Bill.
Our team are well equipped to provide advice on restraint of trade clauses for you or your business. Should you have any questions, please get in touch with one of our experts below.