Know Why Should Non-Compete Clauses Enforceable In Australia?

October 8, 2021    employmentlawyersblog   
Know Why Should Non-Compete Clauses Enforceable In Australia?

There is a common belief among Australian people that non-compete clauses of an employment contract are non-enforceable. The main reason is that they are contrary to the public policy that provides a trained and sufficient labour force.

For more information, you can look at Section 106 of the Industrial Relations Act of 1996. However, some restraint clauses can protect your employer, and the court can subsequently enforce the clause. An experienced non-compete lawyer can help you with the legal action.

When Can A Non-Compete Clause Be Called Reasonable?

If a non-compete clause has to be enforceable, it should be deemed reasonable, not only in terms of scope and duration but also in its attempt to protect the employer.

The clause should also recognize the associated risk. For this reason, the clause should be tailored to the role of the employer. One should consider the following factors.

Specific Conditions

You should check if there are any exceptional circumstances under which the non-compete clause applies or not.

  • If redundancy of the job position is the main reason for leaving, the clause will not apply.
  • The clause may only apply to specific job titles or roles.
  • If the employee's role has changed since the signing of the contract and the employer has not updated the agreements, the clause may not apply anymore.

Geographic Area

If the employee needs to cover a specific geographic area, a restricted competitive activity in that area will be deemed reasonable. However, if the extent of the area becomes more extensive, the court may not enforce the non-compete clause.

Mode

The employee should also check whether the restraining clause covers channel sales partners, online businesses, specific retail outlets, or other distributors.

Definition Of Competitor

The definition of the competitor needs to be specific. If the definition of competition is in a broader sense, there will be less chance of the clause being considered reasonable. It will subsequently reduce the possibility of enforcement.

Time Period

The duration of the restraint should be much less. Otherwise, it will be hard to make the clause reasonable. You should always keep in mind that the risk of the former employee using the relationships and knowledge they have with clients can be reduced by recruiting a replacement and building the same reputation over time.

Under Which Jurisdiction Can The Restraint Be Enforced?

The selection of law between territories and states in Australia related to restraint clauses cannot make a significant difference. However, a few differences do make an impact.

  • International employers may find that the Australian court may apply specific state or territory laws if an agreement enters into an overseas jurisdiction.
  • In other ways, it may also be guided by that specific overseas law of the jurisdiction where the agreement was entered.

Validity Of Restraint Clauses In The Case Of Redundancies

Generally, the non-compete clause cannot be considered reasonable if an employee leaves the job because of the redundancy of the job role. However, there are some exceptions.

  • Suppose the shutting down of a particular business department causes redundancy. In that case, an employee looking for clients in a new competing business in that specific niche will be considered not to cause any damage to the original employer.

Regarding all the conditions mentioned above, you can discuss this with your employment lawyer.

Are Non-Compete Clauses Enforceable In Australia?

To be frank, the Australian law around non-compete and restraint clauses is not very clear to understand. But, a well-drafted restraint preventing post-employment competition is enforceable. This clause can also be applicable for roles that are made redundant.

To provide a clear understanding, we discuss one major incident as an example in the next section.

A Recent Case Of Enforcement Of The Employer's Non-Compete Contract

In the first case in 2012, a senior Australian travel insurance company employee chose to move to a direct competitor. In the former company, the employee had to handle key clients who had lengthy contracts directly. As a senior employee, she had access to confidential information.

  • Her contract contained various restraint clauses, which included even a non-compete clause. This clause had restrained her from joining a direct competitor in the same industry.
  • The court had found that a 12-month period was a reasonable duration to protect the employer. They had also discovered that if it can be proved that the employer has failed to safeguard its relationships after the employee had resigned sufficiently, it could affect any compensation claim.

But in the end, it did not affect the enforcement process for the restraint.

Final Words

Do you feel the law and the whole legal procedure to be pretty complicated to understand? If so, it will be better to hire one of the best non-compete lawyers in Perth. Employment Lawyers Perth WA can be the perfect people for all kinds of assistance!

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