What’s the difference?

Restraint of trade and non-solicitation provisions are also known as “Restrictive Covenants” and operate to limit or impose conditions and restrictions upon employees both during and post-employment.

Restraint of Trade

A Restraint of Trade provision generally operates to restrict an employee from conducting a competing business with their employer over the course of their employment and for a specified time post-termination (whether or not the employment agreement was terminated by the employee or employer). These clauses are usually drafted so that, post termination, they are applicable for a specified period of time (i.e. 6 months) and cover a specified geographical area (i.e. within 10km of the location of the employer).

The extent to which these clauses are enforceable is governed by the Restraint of Trade Act 1976 (NSW). A restraint of trade must be reasonable to protect the employer’s legitimate business interests and must not offend public policy. A number of factors are considered when determining reasonable including (but not limited to) the activities sought to be restrained and the distance and time frame sought to be enforced.

Non-Solicitation

Solicitation arises when a former employee makes attempts to secure clients, customers, suppliers and/or employees from their former employer. This can come in many forms including phone calls, emails, letter and accepting contact from such persons. Non-Solicitation provisions are generally more enforceable than Restraints of Trade as they seek to protect an employer from an employee using confidential information and their relationship with clients/customers, employees, and suppliers to the detriment of the employer.

A Non-Solicitation provision on its own does not necessarily prevent an employee from operating a competing business however does restrict the customers and clients that employee can obtain business from for a particular period of time.

If you are an employer or an employee and require any assistance navigating or enforcing a Restrictive Covenant, please do not hesitate to contact our Employment Law Team on (02) 4721 6200.

 

Written by Amelia Hatton.

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