What is a Non-Compete Clause?

What’s the Point of a Non-Compete Clause?

A non-compete clause is generally a clause in an employment contract that is designed to come into play once an employee has left an employer to protect the employer’s legitimate business interests.

What does a non-compete clause do?

A non-compete clause is designed to prevent an employee who has left a company’s employ from using confidential information and soliciting customers away from the company.

The clause usually states that the employee is restricted from providing services or setting up business within a certain geographical location for a certain amount of time in competition with their former employer.

To be enforceable on an employee, a non-compete clause needs to be reasonable in both the duration and scope.

What is a reasonable non-compete?

Courts are generally reluctant to restrict a former employee from earning a living.

A court will consider a number of factors before determining whether a non-compete cause is reasonable or not before deciding whether to uphold it.

The factors that will be considered are:

  • the duration of the non-compete clause;
  • the geographic area in which it is to apply;
  • the activities of the employee that the non-compete seeks to control.

The High Court of Australia has said that unreasonable restraints will not be upheld as it would not be in the best interest of the public to prevent a person from earning a living.

Some restraint clauses that have upheld in Australia have been between three and twelve months in duration as reasonable in the particular circumstances, restricted to a specific geographical location and a reliance on the need to restrict specific conduct by the employee.

If you are an employee being restricted by unreasonable non-compete clause or a company wanting to include a non-compete clause in an employment contract, contact an employment lawyer.

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