RESTRAINT OF TRADE CLAUSES CAUSE HEADACHES

To avoid headaches, and unnecessary legal costs, employers and employees are advised to sort out their restraint of trade clauses at the start of the employment relationship. 

We often find that employees have concerns about unfair restraint of trade clauses when they are about to start new employment – after they have given notice to the old job. The wording of these clauses can mean that the employee cannot work in their new job, causing uncertainty and loss of income. Many of the restraint of trade clauses we see are so harsh that they are illegal. Sometimes employers will renegotiate clauses at the end of the employment relationship, but the greatest amount of goodwill is at the start and it is better for both parties to know where they stand from the start.

Some examples of problem clauses:

·         Ones that try to stop the employee working anywhere in New Zealand for a lengthy period of time.

·         Ones that seek to stop the employee working in their usual job for a year.

·         Ones that penalise an employee if customers of the employer use the services of the new employer – even where this has nothing to do with the employee.

What is a fair and binding restraint of trade clause depends on the circumstances. The legal purpose of a restraint of trade clause is to protect the employer’s business, and not to prevent fair competition or to stop the employee from earning a living. Reasonableness is the key.

But there’s one thing that both employers and employees can agree on: a proper restraint of trade clause saves headaches later.