Restraints of Trade & Non-Compete Clauses: What Australian Employers Can Legally Enforce

You’re about to lose a key employee. They know your business model, your clients, your pricing. You want to protect your business when they leave, so you include a restraint of trade clause in their contract—something that stops them from working for a competitor for 12 months.

But here’s the problem: not all restraint clauses are enforceable in Australia, and if a court finds yours is unreasonable, it’s void. You can’t just ban an employee from earning a living.

The Fair Work Act 2009 (Cth) doesn’t set specific rules for restraints, but Australian common law does. A restraint must be reasonable in scope, duration, and geography to hold up in court. This guide explains what works, what doesn’t, and how to draft clauses that actually protect your business without exposing you to legal risk.

What Is a Restraint of Trade Clause?

A restraint of trade clause is a contractual condition that restricts what an employee can do after they leave employment. Common types include:

1. Non-compete clauses — prohibit the employee from working for a competitor or starting a competing business within a defined territory and timeframe.
2. Non-solicitation clauses — prevent the employee from soliciting clients or recruiting staff from the former employer.
3. Confidentiality clauses (confidentiality/NDA) — protect trade secrets, business processes, or client lists by restricting disclosure after employment ends.

The Fair Work Act doesn’t regulate restraints directly. Instead, common law principles—derived from case law and the contract law of your state—determine enforceability. A restraint is valid only if it is reasonable.

The “Reasonableness” Test

Australian courts apply a three-part reasonableness test:

1. Legitimate Business Interest

The employer must have a protectable interest. Valid interests include:

• Trade secrets or confidential business information (e.g., manufacturing processes, pricing models, software code)
• Client relationships and goodwill (e.g., existing customer lists, ongoing account relationships)
• Competitive advantage from specialized knowledge or training

Courts reject restraints based purely on the employer’s desire to prevent competition or reduce labour poaching without a specific, legitimate interest.

2. Scope and Duration

The restraint must be reasonable in time and geography. Examples of case-law benchmarks:

• 6 months: generally enforceable for non-compete clauses
• 12 months: enforceable in some cases (especially for senior roles, high-value client relationships)
• 24 months or longer: rarely enforceable; courts view this as punitive
• Geographic scope: must match the employer’s actual market. A national restraint is easier to defend if the business operates nationwide; a local restraint for a local business is more reasonable.

3. No Broader Than Necessary

The restraint cannot be broader than necessary to protect the employer’s interest. A restraint banning an employee from “all employment in the same industry” is likely too broad. A restraint banning them from “managing accounts for competing firms in the metro area for 9 months” is more focused.

Types of Restraints & Enforceability

Non-Compete Clauses (Moderate-to-High Risk)

These prohibit the employee from working for a competitor or starting a competing business. They are the hardest to enforce because they prevent the employee from earning a living.

Enforceability factors:

• 6–12 month periods are generally enforceable if the business interest is strong (e.g., key sales roles, senior management, proprietary knowledge)
• 12+ months is rarely enforceable unless the role involved extraordinary access to competitive information
• Must identify the geographic area and the type of competing business with precision
• Courts will not enforce a blanket ban on working in the industry

Case example: An employee in a major accounting firm signs a non-compete clause preventing them from working for another firm in Australia for 12 months. If the firm can show the employee had access to confidential client lists and methods, a court may enforce a 12-month restraint limited to their state or region. But a national, 24-month restraint would likely be void as too broad.

Non-Solicitation Clauses (High Enforceability)

These prevent the employee from soliciting the employer’s clients or recruiting the employer’s staff after employment ends.

Enforceability factors:

• Generally more enforceable than non-compete clauses because they don’t prevent employment
• 12–24 months is common and often enforceable
• Must be limited to clients/staff the employee actually dealt with, or the client list the employee had access to
• Broader restrictions (e.g., “no solicitation of any client the company has ever had”) are scrutinized more strictly

Case example: A recruitment manager leaves a staffing firm and immediately recruits five of the firm’s best consultants. A non-solicitation clause limiting the manager from recruiting firm staff for 12 months would likely be enforceable because it protects a legitimate business interest (staff retention) and is limited in scope.

Confidentiality Clauses / NDAs (Highest Enforceability)

These restrict disclosure of trade secrets and confidential business information after employment ends.

Enforceability factors:

• The strongest type of restraint because confidentiality is always a legitimate business interest
• Can be unlimited in duration (some agreements say “in perpetuity”) for trade secrets
• Must identify what is confidential (e.g., “client lists,” “pricing models,” “proprietary software”)
• Can apply post-employment indefinitely

Case example: An engineer signs a confidentiality clause protecting the design specifications for a proprietary manufacturing process. Even after the engineer leaves, the NDA would prevent disclosure because the employer has a perpetual interest in protecting the trade secret.

What Makes a Restraint Void

Courts will not enforce a restraint if:

• It is unreasonably broad in time, geography, or scope — e.g., banning a factory worker from “any manufacturing role in Australia for 3 years”
• It protects no legitimate business interest — e.g., banning a junior employee from working in the same industry with no proprietary knowledge at stake
• It is so oppressive that it effectively forces the employee to leave the industry or the country
• It goes beyond what is necessary to protect the employer — e.g., banning a regional sales rep from “all work in Australia” when the company operates only in one state
• It was included in a contract signed under duress or unconscionable conduct (rare but possible)

Critical point: Australian courts will NOT modify an unreasonable restraint to make it reasonable. If a restraint is found to be void, it is unenforceable in its entirety. The courts call this the “blue pencil” doctrine — they won’t redraw the line. So drafting too broadly backfires.

Best Practice for Employers

1. Define the Legitimate Interest Clearly

In the contract or restraint clause, state explicitly what you are protecting:

This restraint protects the Employer’s legitimate interests in:
(a) Confidential business information, including [specific list]
(b) Client relationships established by the Employee, specifically [client list or types]
(c) Competitive advantage from specialized training and knowledge

2. Tailor Duration and Geography to Your Business

• If you’re a local or regional business, make the geographic scope local or regional.
• If you operate nationally, a national scope is more defensible.
• 6 months is safe; 12 months is defensible for senior roles; 24+ months is risky.

3. Be Specific About Scope

Instead of: “The Employee must not work for any competitor”
Write: “The Employee must not engage in [specific type of work] for [named competitors or types of businesses] in [geographic area] for [duration]”

4. Combine Restraint Types

If a broad non-compete is risky, layer it with a strong non-solicitation and confidentiality clause. A court may void the non-compete but uphold the other two.

5. Document the Legitimate Interest

If the employee challenges the restraint, you’ll need to prove the business interest. Keep records of:

• Client lists the employee accessed
• Confidential information the employee handled
• The role’s level of responsibility and knowledge
• The competitive environment

What If an Employee Breaches a Restraint?

If an employee breaches a valid restraint, your remedies are:

1. Injunction

You can seek a court order preventing the employee from working for the competitor. Courts grant injunctions where there is a serious question to be tried and damages would not be an adequate remedy. For example, if a key sales rep starts working for a rival firm and is soliciting your clients, you can ask the court to stop them.

2. Damages

You can claim compensation for losses caused by the breach (e.g., lost revenue from client defection). But calculating damages is difficult, which is why injunctions are preferred.

3. Legal Costs

If the breach is clear and the restraint is enforceable, the court may order the employee to pay your legal costs.

Important: Enforcement is time-sensitive. If you wait months before taking action, a court may refuse to grant an injunction because you did not act urgently. If you suspect a breach, seek legal advice quickly.

Common Misconceptions

Myth 1: “If I put it in the contract, it’s enforceable.”
Reality: No. Restraints must be reasonable. A broad non-compete will be void, even if both parties signed it.

Myth 2: “I can prevent an employee from working in the industry at all.”
Reality: No. Courts will not enforce restraints that prevent someone from earning a living in their profession entirely. The restraint must be targeted.

Myth 3: “I can enforce a restraint even if the employee never handled confidential information.”
Reality: Difficult. You need a legitimate business interest. A junior employee with no access to trade secrets or client relationships may successfully challenge a broad restraint.

Myth 4: “If the restraint is void, I can sue for damages anyway.”
Reality: No. If a restraint is void, it’s unenforceable entirely. You cannot rely on a doctrine of “unjust enrichment” or goodwill; the restraint either works or it doesn’t.

Myth 5: “Confidentiality clauses don’t need an end date.”
Reality: True—confidentiality clauses protecting trade secrets can be unlimited in duration. But standard business information (e.g., client lists, pricing) may only be protectable for a limited period (e.g., 3–5 years after employment ends).

Recent Trends & Legislative Changes

As of July 2026, the Fair Work Act has not introduced specific restrictions on restraint clauses, but there is ongoing debate about non-compete clauses in Australia. Some industry bodies and unions have called for stricter limits on non-compete restraints, particularly for lower-paid roles.

The Australian Competition and Consumer Commission (ACCC) has also flagged non-compete clauses as a potential competition concern in certain sectors (e.g., tech, professional services). While the ACCC has not yet introduced sweeping reforms, employers should monitor legislative developments.

In contrast, some state governments (e.g., Victoria) have explored amendments to restraint law, and there may be state-level changes ahead.

Best practice: Review your restraint clauses annually to ensure they remain reasonable and aligned with current case law.

When to Seek Legal Advice

You should consult an employment lawyer before:

• Drafting restraint clauses in contracts for senior roles, roles with access to trade secrets, or roles involving client relationships
• Enforcing a restraint—if an employee has breached it, seek advice immediately
• Defending a restraint clause if an employee challenges it in court
• Updating restraint clauses to reflect changes in your business

Fair Work Centre can connect you with an employment lawyer for advice specific to your situation. Call 1300 161 828 or visit our free advice call page.

Key Takeaways for Employers

Restraint of trade clauses are powerful tools if drafted correctly, but they’re also a common source of litigation. The key is to ensure the restraint is reasonable in duration, geography, and scope, and that it protects a legitimate business interest.

A 6–12 month non-compete for a key sales role with access to confidential client lists is likely to be enforceable. A 24-month blanket ban on all work in the industry is not.

If you’re uncertain whether your current restraint clauses are enforceable, or if an employee has breached a restraint, seek legal advice. The cost of getting it right upfront is far less than defending a breach in court—or losing a case you thought you’d won.