Non-compete agreements in Australia: what you need to know

Non-compete agreements have become increasingly common in Australia over the past few years. These agreements, also known as restraint of trade clauses, are often included in employment contracts to prevent employees from working for a competitor or starting their own competing business after leaving their current employer.

While some non-compete agreements are reasonable and necessary to protect a company`s legitimate interests, others can be overly restrictive and may unfairly limit an employee`s ability to find work in their chosen profession.

If you are an employer considering implementing a non-compete agreement or an employee who has been asked to sign one, it`s important to understand the legal implications and your rights.

What is a non-compete agreement?

A non-compete agreement is a clause in an employment contract that restricts an employee`s ability to work for a competitor or start their own competing business for a certain period of time after leaving their current employer.

These agreements are designed to protect a company`s intellectual property, confidential information, trade secrets, and customer relationships. They can also prevent an employee from taking clients or employees with them when they leave.

Non-compete agreements often specify a geographic area and a time period during which the employee is prohibited from competing with their former employer. For example, an agreement may prohibit an employee from working for a competitor within a 50-kilometre radius for six months after leaving their current job.

Are non-compete agreements enforceable in Australia?

Non-compete agreements are generally enforceable in Australia, but they must be reasonable and not overly restrictive.

The courts will consider a number of factors when determining the reasonableness of a non-compete agreement, including the scope of the restrictions, the geographic area covered, the time period of the restrictions, and the employee`s position and level of responsibility.

If a non-compete agreement is found to be overly restrictive, it may be deemed unenforceable. In some cases, the offending clauses may be struck out of the agreement, while in others, the entire agreement may be voided.

What are the potential consequences of violating a non-compete agreement?

If an employee violates a non-compete agreement, they may face legal action from their former employer. The employer may seek an injunction to prevent the employee from working for a competitor or starting their own business, and may also seek damages for any losses suffered as a result of the breach.

Employees who are found to have breached a non-compete agreement may be ordered to pay compensation to their former employer or may be held liable for any profits made as a result of their competition.

Conclusion

Non-compete agreements are becoming more common in Australia, but they must be reasonable and not overly restrictive in order to be enforceable. Both employers and employees should seek legal advice before entering into a non-compete agreement to ensure that their rights are protected and that the agreement is legally sound.