Restraint of trade clauses are generally unenforceable unless they protect a legitimate business interest. Common examples include protecting goodwill in the sale of a business or safeguarding confidential information and client relationships in an employment context.

To be enforceable, a restraint must be reasonable in scope. It must go no further than necessary to protect the relevant interest. In Queensland, restraints that are too broad in duration, geographic area or restricted activities may be unenforceable. Clear drafting is required to define the activities restrained, the duration of the restraint and the relevant geographic area.

Common drafting issues in employment contracts

• Overly broad client restrictions: Restricting contact with clients the employee had no dealings with
• Unnecessary business restrictions: Prohibiting all dealings rather than limiting competitive conduct
• Excessive geographic scope: Applying restraints to areas beyond where the employee operated
• Excessive duration: Imposing a longer restraint period than reasonably required
• Unreasonable activities: Restricting activities in a way that prevents the employee from earning a livelihood

Restraints in business sale contracts

In the sale of a business, restraint of trade provisions are often structured as cascading clauses. These combine different activities, geographic areas and time periods into separate alternatives so that if one restraint is unenforceable, others may still apply.

Because a seller typically receives consideration for goodwill, restraints in business sale agreements are more likely to be enforceable. However, restraints must still be reasonable. Provisions that are overly restrictive, particularly where they prevent a person from earning a livelihood, may be unenforceable.

Restraint of trade legal advice

QBM Lawyers advise on the drafting and enforcement of restraint of trade provisions, including in business sale agreements and employment contracts. We also act in disputes relating to the scope and enforceability of restraints, including matters involving confidential information and client relationships.