RESTRAINT OF TRADE CLAUSES ARE A VIABLE OPTION WORTH CONSIDERATION
Some have held the view that restraints of trade ‘aren’t worth the paper they’re written on’ due to being unenforceable (or unlawful). However, recent decisions in the Employment Relations Authority (ERA) and Employment Court have underlined that if the restraint is fair and reasonable in the circumstances, an employer is entitled to (and should) rely on a restraint of trade to protect its proprietary interests against employees leaving to work for a competitor.
Well-known media personality Tova O’Brien recently made headlines when she challenged the legality of a restraint of trade in her Individual Employment Agreement, claiming that the restraint was unreasonable. O’Brien’s employer, Discovery NZ, maintained it had a legitimate proprietary interest which it needed to protect and that the restraint of trade (that both parties had agreed to) was both fair and reasonable in the circumstances.
The first question the ERA must determine is whether the employer has a business interest worth protecting. In the O’Brien case, it found that confidential information, business relationships and goodwill were all proprietary interests that could be protected by a restraint of trade.
Disputes around restraints of trade are not limited to corporate entities and their senior employees. In another recent case, the ERA found that a restraint imposed against a glazier (in a provincial setting) was reasonable. In arriving at her decision the Authority member referred to previous case law, citing the relevant part of the Glazier’s employment agreement and stating that “agreements are made to be kept.”
The cases reinforce the view that restraints of trade exist to protect employers’ proprietary interests, trade secrets and business connections. The restraint period gives employers the opportunity to reinforce those relationships before an existing employee can compete against it. To be enforceable, a restraint must be reasonable in the circumstances and not overly restrictive. The Court (or the ERA) also has the ability to moderate a restraint of trade clause to the extent required to make it reasonable.
These decisions highlight that if employers can show a restraint is necessary to protect their tangible proprietary interest, and that it does not unreasonably restrict their employee’s ability to make a living, or prevent healthy competition, the restraint is likely to be upheld if challenged.
A business goes to significant lengths to create client relationships, develop specific know-how and achieve standing in its particular field. Those things should be valued and protected. Imposing a restraint of trade within your employment relationships is a viable option that employers should consider.
How can we help?
WRMK Lawyers has Northland’s largest team of employment law specialists. If you need some help or guidance, please give one of us a call or contact your usual WRMK lawyer for advice. You can view our Employment Law team here.
WRMK Lawyers takes all reasonable care to make sure that the information in this article is up-to-date and accurate at today’s date. It is necessarily general information and not intended as legal advice to be relied upon.
Our thanks to David Grindle for writing this article, which was first published in the Northern Advocate on 5 July 2022.
Get in touch with your question now
RELATED PEOPLE
