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.
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.