Earlier this year, former employment lawyer and MP Helen White introduced the Employment Relations (Restraint of Trade) Amendment Bill to Parliament as a private members bill. It is currently in the parliamentary ballot and if drawn out, may make significant changes to the current legislation.
What Is A Restraint Of Trade?
A restraint of trade is a common clause used in employment agreements to restrict the rights or abilities of the employee to carry out work in the same or similar industry. A restraint of trade will generally fall into two categories. The first is non-competition which limits an employee starting their own business in the same industry, or working for another employer in the same industry. The second is non-solicitation, which prevents employees from approaching clients, customers, employees or suppliers from their previous employer.
These clauses are used to help employers to protect aspects of their businesses including trade secrets or confidential information. If enforceable, they can be a useful tool and provide some peace of mind for an employer.
The Current Law
At present, a restraint of trade clause can be enforced if it is deemed to be reasonable. It is the responsibility of the party wanting to enforce the clause to show this. For a restraint to be considered reasonable, several factors need to be taken into account including the time period of the restraint, the geographical area it applies to, the position of the employee in the company and the wording used in the employment contract and what it is protecting.
An employer must show that they are protecting something more than just a competitive edge and cannot prevent an employee from being able to earn a living in their chosen profession.
If a restraint of trade clause is deemed to be unreasonable, the Employment Court may state the clause cannot be enforced and therefore the employee does not have to comply with it.
The Bill’s Changes
The changes proposed in the bill would result in further restrictions on when a restraint of trade clause can be used or enforced. It proposes that a restraint of trade clause can only be used when the employer is protecting a proprietary interest, that they will have no effect where an employee earns less than three times the minimum wage, the duration of the restraint can be no longer than six months and the employer will need to pay half the employee’s weekly earnings for each week that the restraint remains in place.
This increases the limitations imposed by the current legislation, however, will only be enforced if the bill is drawn from the ballot.
If you have any restraint of trade questions, get in touch with the Collins & May team.
