Explainer
Non-Solicitation and Restraint of Trade Clauses
What Australian courts actually enforce, why most restraints overreach, and how to draft one that holds.
In short
Restraint of trade clauses are enforceable in Australia only so far as they are reasonably necessary to protect a legitimate business interest. Non-solicitation — don't approach our clients or staff — is narrower and far easier to enforce than a full non-compete. Overreaching is the most common reason a restraint fails.
Next step: having a restraint reviewed before someone leaves is worth ten times having it litigated after. Ask us to review yours.
Almost every Australian employment contract, shareholders agreement and business sale contains a restraint clause. Most were copied from something else, and a good proportion would not survive a challenge. The rule courts apply is short: a restraint of trade is void as contrary to public policy unless the party relying on it proves it goes no further than reasonably necessary to protect a legitimate interest.
The four kinds of restraint
| Clause | What it stops | Enforceability |
|---|---|---|
| Non-solicitation of clients | Approaching or canvassing your customers | Usually good, where a real client connection exists |
| Non-solicitation of staff | Poaching your employees or contractors | Usually good, and often the easiest to justify |
| Non-dealing | Dealing with your clients at all, even if they approach first | Harder — it catches conduct the person did not initiate |
| Non-compete | Working in a competing business in an area for a period | Hardest; needs a genuinely protectable interest |
What counts as a legitimate interest
- Client connections — relationships the person built at your expense and could take with them
- Confidential information and trade secrets — pricing models, methods, pipelines
- Staff stability — protecting the team from being lifted out en masse
- Goodwill — most compelling on a business sale, where the buyer paid for it
What is not legitimate is simply not wanting competition. A restraint that exists only to stop a former employee earning a living in their field will not be upheld.
Why restraints fail
- Too long. A two-year restraint on a junior salesperson is not protecting anything a shorter one would not.
- Too wide geographically. "Australia" for a person who only ever serviced one metropolitan area.
- Too broad in activity. Banning any involvement in an entire industry rather than the role actually performed.
- No consideration or variation problem. A restraint bolted onto an existing employment relationship without anything given in return.
- Repudiation. If the employer wrongfully terminates, it may lose the benefit of the restraint entirely.
- Boilerplate mismatch. The same clause used for the CEO and the receptionist, which suggests it was never tailored.
Cascading clauses, and the NSW difference
A cascading or ladder clause lists alternative combinations — 12 months / 6 months / 3 months, Australia / the state / a radius — drafted as separate severable obligations. The purpose is that if the widest version is unreasonable, a narrower one can still stand instead of the whole clause falling over. Courts accept the technique but dislike clauses so convoluted that nobody could tell what they were agreeing to, so keep the ladder short.
New South Wales is more forgiving. Under the Restraints of Trade Act 1976 (NSW), a court may enforce a restraint to the extent it is reasonable, reading it down rather than striking it out. In other states you are relying on common law severance, which is why the cascading structure matters more outside NSW.
Restraints on a business sale
This is where restraints are strongest. A buyer paying for goodwill is entitled to protect it, and courts recognise a longer and wider restraint on a vendor than on an employee — commonly two to five years. If you are selling, read it closely: a restraint drafted for the buyer's comfort can quietly prevent you from doing anything in your own industry afterwards. See business sale and purchase and shareholders agreements, where restraints on exiting shareholders sit.
What to do when someone is leaving
- Read the actual clause before saying anything to the departing person or to clients
- Record what confidential information and client relationships they held
- Write to them promptly setting out the obligations — silence weakens your position later
- Act quickly if you need an injunction; delay is fatal to urgent relief
- Be realistic about whether the clause you have is the clause you wish you had
If a restraint has been breached, see commercial disputes. If you are on the receiving end of a restraint letter, get it reviewed before you assume it binds you — many do not.
Frequently asked questions
Are non-compete clauses enforceable in Australia?
They can be, but only where reasonably necessary to protect a legitimate interest. They are the hardest restraint to enforce and the most often read down.
How long can a restraint last?
Three to twelve months is the common enforceable range for employees; two to five years is common and often upheld on a business sale.
Can a contractor be restrained?
Yes, and the reasoning is similar, though the analysis differs because a contractor's own client base may pre-date the engagement.
Does a restraint survive if I am made redundant?
Often yes, if the termination was lawful. Where the employer has repudiated the contract, the restraint may be unenforceable.
Is a non-solicitation clause worth having if a non-compete is risky?
Yes — it is usually the more valuable clause in practice, because most damage comes from clients and staff following a person out, not from abstract competition.
Two ways to start
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