What Is the Punishment for Breaking a Non-Compete Clause?

March 20, 2024    Employment Lawyers
What Is the Punishment for Breaking a Non-Compete Clause?

In business, a company dealing in a certain service or product trains its employees to work better and serve the company’s interest. However, several people use the company’s information and skills to open a competing business and eat into the profits. The Australian legal system allows the employing companies to enter into a non-compete clause in Australia to protect their business.


In this article, you will find the different info associated with these agreements and the utility of keeping contact with experienced non-compete lawyers in Perth.


What is a non-compete clause?


It is a legal agreement mentioned in the employment agreement of a worker that comes into effect once the said employee is no longer associated with your business. The Australian judiciary system considers this clause as a measure to ensure a level playing field with the competitors. However, it is better to involve experienced and skilled non-compete agreement lawyers in Perth to draft the agreement. It can prevent an employee from starting a business, soliciting clients and customers, and using your business’s private information.


Once you have finalized the complete agreement with the help of a non-compete agreement lawyer and your worker has signed it, they will be prohibited from offering similar services within a specific geographical area for a certain period. In short, the agreement enables businesses to have one less worry on their minds regarding policy and appointment.


However, a non-compete agreement beyond the ‘legitimate business interests’ (conditions supposed to support companies’ viable economic interests) may not be enforceable in employment. So, discussing with non-compete agreement lawyers in Perth is better before proceeding.


What are ‘legitimate business interests’?


An Australian employer’s ‘legitimate business interests’ are reasonably necessary information with restricted access to protect its occupation, business, or goodwill. Some instances of such interests that come under the protection of the non-compete clause in Australia include:


  • Private information from a previous employer

Businesses have their trade secrets, customer lists, and pricing data, which they have a legitimate interest in protecting, and a non-compete section in the employee’s agreement can help prevent past workers from utilizing this data to compete with their former proprietors.


  • Client networks

Customers offer businesses and generate revenue, so companies have a justified interest in protecting their data. The former employees become legally bound not to use the customer network data with the non-compete clause, which means they cannot contact or steal the customers from their previous jobs.


  • Employee relationships

Companies train and make their employees skilled in certain services to run the business optimally. A non-compete clause prevents ex-employees from recruiting or hiring the former employer’s workforce, thereby protecting the employer’s interest.


However, one should remember that the court may not uphold every clause of the non-compete agreement safeguarding the company’s interest, as it will consider its rationality while deciding on its enforceability. Therefore, hiring the most proficient employment lawyers Perth WA will be fruitful; as the court may reject too broad and too long non-compete clauses.


Factors that determine the clause’s rationality

Some factors determining the reasonableness of Australian non-compete clauses are mentioned below:

  • The employer’s business type and nature – The information’s degree of sensitivity determines the probability of non-compete clauses enforcement.

  • Length of the non-compete clause – Shorter non-compete clauses are more enforceable than extended clauses.
  • The employee’s position and precedence – Employees having access to confidential information or customer data are more likely to be subjected to a non-compete clause than other workers.
  • Geographical scope – Non-compete clauses that prevent employees from working in a particular geographical area may have more enforcement probability than the ones restricting them from working in any geographical area or industry.
  • Any employee-provided consideration – The non-compete clause will have more implementation possibilities if the employer provides some consideration, such as an increased salary and signing bonus.

It is important for an employee to carefully review their employment agreement before signing it. They can also take the advice of professional employment lawyers in Perth before deciding.


In conclusion


Non-compete clauses are designed to protect a business’s genuine interests, and breaking them may cause hefty financial penalties and restrictions to work in a distinct field for an extended period. So, proprietors and staff must seek consultation from the best employment lawyers in Perth before legal and professional commitment.

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