How employers can guarantee a restraint of trade

It is now reasonably well settled in Australia that a post employment restraint of trade will not be upheld for an employer’s benefit if the employer’s conduct constitutes a repudiation of the contract and the employee elects to accept the repudiation and treat the contract as at an end.

To avoid this risk, it is recommended employers consider having an employee enter into a separate commercial deed providing for and supporting the restraint, supported by commercial consideration. This may involve the payment of a one off or annual fee, or the allocation of shares for example.

In this situation, the integrity and enforceability of the restraint will depend not upon the parties’ conduct as employer and employee, which can be affected by a dispute, but upon the effect of the commercial arrangements between them as contracting parties.