So, I’ve just left my last job and I’m looking to go out and work for a competitor or work for myself. I don’t owe my last boss anything and can dive straight in, right?
Yeah, nah…
There will be a couple of standard clauses in most employment agreements that you need to be aware of; they are the Confidentiality and Restraint of Trade clauses.
Restraints of trade?
I’ve heard of those… but I’ve been told that they’re unenforceable and I don’t need to worry.
You probably ought not to take employment advice from that bloke in the pub on the leaner next to you.
You will usually see three kinds of restraint of trade in your employment agreement:
- Non-competition: where you are prevented from working for a competing business in radius around your old employer and for a certain period of time.
- Non-solicitation of employees: where you are prevented from inducing your former colleagues to come and work for/with you.
- Non-solicitation of business: where you are prevented from prospecting your former-employer’s clients for business for a period of time.
Your mate in the pub probably is referring to the first one. Usually, these are unenforceable – it simply isn’t reasonable for an employer to demand that you cannot work as a carpenter, hairdresser, or shearer etc in your home town and in your chosen field. However, it depends if your employer has something they are trying to protect, say they are the only producer of flux-capacitors to a discerning clientele in your area and they are trying to protect their income from you going straight into producing flux-capacitors as well. However, the radius and term has to be reasonable – they cannot limit you from going into the flux-capacitor business forever.
Yeah, fair enough.
So that applies to bringing my mate Doug with me?
Again, yes, as long as the restriction on time is reasonable. Doug might be a specialist producer of the matterrobins that go into flux capacitors and your former employer will be looking to prevent him from jumping ship.
You ought to be a bit careful too, because most clauses are also broad enough to try to stop you from encouraging your former colleagues to leave to go to work for anyone, not just you, or a business you’re involved with. A business has a right to protect itself from attacks on its workforce.
Okay, Doug will be disappointed.
Compet
So, the flux-capacitor business has a fairly limited local client base of eccentric scientists, which my former employer has pretty much sewn up. But I reckon my flux capacitors are better. Can’t I just drop by and see if they’d like to buy mine?
Again, the Courts will not put up with anything that is overly restrictive and anti-competitive, but they do recognise that a business depends on its income. Again, the time period of the restraint has to be reasonable.
So what is reasonable?
How long is a piece of string?
What is reasonable varies from case to case, but the Courts look at:
- whether your former employer has established a legitimate proprietary interest requiring protection; and
- whether the restraint is shown to be no wider than is reasonably necessary.
The Courts have also said that “… a restraint will be unreasonable where the detriment to the employee is greater than the benefit to the employer.” … if that helps.
Yeah, ta.
So does it just apply to me? What if I want to go to work for Brian’s Flux Capacitors?
Restraints of trade also apply to the new employer. They cannot knowingly abet you in breaching your restraint of trade obligations or they will be in the cart as well. It happens, I’ve seen it.
Also, this applies to using confidential information.
Crikey.
So what’s this business about confidentiality and confidential information?
So, using flux capacitors as an example, there will be information that belongs to your former employer about how they’re made, what they’re made of, who they’re sold to. It would be a breach of the confidential information clause if:
- you used that information to set up a competing business;
- you deliberately memorise or copy a list of your former-employer’s clients to use after your employment has ended;
- you use or disclose information about a secret manufacturing process or other information that is closely guarded so as to be a trade secret;
Oh. Is that all I need to know?
Restraints of trade are fairly difficult for employers to enforce, however, it is not so simple that your mate in the pub can tell you to go hell for leather making flux capacitors, pinching your former workmates, and then flogging them to Doc Brown (who was buying them from your old employer). Enforcement does sometimes occur and it can cost you.
As with most aspects of employment law, it pays to check with someone who does know.
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