Hi there. A restraint of trade clause is a term of a contract in which one party (the employee) agrees not to engage in trade that would compete with the other party to the contract (the employer). A restraint of trade clause usually remains in force even after the employment contract has ended.

Australian law says that a restraint of trade clause must be reasonable in the interests of the parties to the contract. This means that, if you want to rely on the restraint clause, you need to show that the clause protects your legitimate business interests and does not go beyond what is necessary to protect those interests. The restraint clause must also be reasonable in the interests of the public – in other words, the clause must not be contrary to or interfere with the public interest. Importantly, a restraint of trade clause cannot be used simply to reduce or avoid competition.

Whether you have a legal claim against your former employee will depend on two things: (a) whether the person is in breach of the exact terms of the original clause (i.e. within the physical radius or time period specified in the employment contract); and (b) whether the clause is reasonable in the interests of the parties and the public, as explained above. If these two things are satisfied, then you will have a legal claim against your former employee.

The issue may be resolved by first sending the former employee a formal ‘cease and desist’ letter that outlines the alleged breach of her employment contract, and informing her of the legal consequences she faces if she continues to work in breach of the restraint clause. A negotiated agreement or settlement may be reached. If this approach is unsuccessful, the next step would be to commence legal proceedings against the former employee.

You are unlikely to have a legal claim against the former employee’s new employer (i.e. the competitor business), even if they were aware of the restraint clause. This is because the clause was part of the employment contract between you and the former employee. The new employer was not a party to that contract and therefore not bound by its terms.