What kind of “restraint of trade” should you have in place to protect your business?
When asking the question, should I place a restraint of trade or a non-competition clause in my employees’ agreement, this is a good excerpt to consider. In the case Asiaciti Trust New Zealand Ltd v Harris – 2013. Richard Rudman quotes the Employment Court where they note “(t)he law jealously guards the right of employees to pursue their chosen occupations and earn a living and this right will not be lightly interrupted by the courts …”. While this case is an older case, the sentiment in this statement is still echoed by the authority today. Any restraint of trade is therefore difficult to enforce.
In saying this, if it is worded correctly, clear in its intent, reasonable and very specific in its terms, a restraint can be something that businesses could use if/when required.
Many small businesses that reach out to us to discuss restraints, do so because they want to protect their business and livelihood. In most cases that we deal with all that is needed are confidentiality and non-solicitation clauses and these will usually be enforceable even once the employee leaves the business. These two clauses deal with the following:
- Confidentiality – it is, in reality a gag order to ensure that your business secrets are kept secret. This clause stays in place and is enforceable indefinitely.
- Non-Solicitation – this protects your employees and your clients from being approached by an employee or ex-employee, to leave your business. This will apply for a short (usually 6-12 months) period.
If you wish to ensure the non-solicitation provision is enforceable you should write to any exiting employee to remind them of their obligations before they finish working for you, especially if they are leaving to go and work for a competitor.
Restraints that will stop them working in the field for a period of time are possible, but must be for good reason, and be far more targeted, and will be restricted to a narrow geographic area.
Click here if you need to talk to Beccy or Mike about what you have in your current agreements or if you are wanting to take-action against an employee.