Deed of Restraint Explained: Protecting Your Business Interests

Whether you’re selling your business, hiring key staff, or entering into a new partnership, protecting your hard-earned assets and relationships should be a top priority. A deed of restraint is a powerful legal tool designed to do just that - helping you safeguard your business’s confidential information, client relationships, and competitive edge should someone walk out the door or sell up.

But what exactly is a deed of restraint? How is it different from a regular contract, what does a “restraint of trade” mean, and when do you really need one? Knowing how to use restraint clauses effectively can be the difference between peace of mind and a costly dispute down the track. Keep reading as we break down how deeds of restraint work, what they typically cover, and what you need to consider to ensure yours stands up in practice.

What Is A Deed Of Restraint?

A deed of restraint is a specific type of legal agreement designed to restrict someone’s activities after a particular relationship ends - often after an employee leaves a business or a business is sold. They’re commonly used to:

• Prevent former employees, business owners, or contractors from competing with your business for a set period of time (the restraint period) and in a defined location (restraint area).
• Stop those individuals from poaching your customers, clients, or staff.
• Protect your confidential information and trade secrets - even after the working relationship ends.

Deeds of restraint are often more robust than a simple restraint clause in a contract because a deed is a formal, binding document that doesn’t require an exchange of money (“consideration”) to be enforceable.

What Does “Restraint Of Trade” Actually Mean?

The term restraint of trade broadly describes any agreement that restricts a person or business from trading or working in a particular way. In business law, it’s commonly found as part of a deed of restraint, protecting a business after the departure of important personnel or the sale of a business.

The most common forms of restraint of trade in Australia include:

• Non-compete clauses: Preventing someone from setting up or working with a competing business in a certain area for a certain time.
• Non-solicitation clauses: Stopping someone from approaching your clients or staff after leaving.
• Confidentiality clauses: Preventing the use or disclosure of your sensitive business information.

While restraint of trade clauses are an important part of business protection, courts in Australia will only enforce them if they go no further than reasonably necessary to protect your legitimate interests - meaning they can’t just be used to unfairly prevent someone from earning a living.

Learn more about the different types of restraint clauses in Australia.

When Do You Need A Deed Of Restraint?

You might need to consider a deed of restraint (or a well-drafted restraint clause) in a few common scenarios:

• Sale of business: To ensure the seller doesn’t open a new, competing business down the road, undermining the goodwill you just paid for.
• Key employee departures: When a senior employee with access to client lists, strategies, or business secrets leaves your business.
• Contractor or consultant arrangements: If you’re outsourcing core functions or sharing know-how with trusted partners and want to prevent them using it to compete against you.
• Business partnerships and joint ventures: To clarify what former partners can and can’t do if the relationship ends.

While standard employment or sale agreements often contain a restraint of trade clause, a deed of restraint is even more robust - especially if there’s no payment being exchanged for the promise (such as enforcing a restraint on a former business partner after exit).

Still unsure if a deed of restraint is right for your circumstances? Our team can help assess your risks and draft a tailored agreement.

What Does A Typical Deed Of Restraint Cover?

No two restraint deeds are exactly the same, but most will address the following:

• Who is being restrained? (e.g. the former owner, employee, or contractor named in the deed).
• What activity is being restrained? (e.g. working for a competitor, starting a similar business, soliciting former customers, hiring your staff, disclosing confidential information).
• For how long? (the restraint period, such as 6 months, 12 months, or longer - what’s reasonable depends on your industry and situation).
• Where does it apply? (the restraint area - such as within a 10 km radius, citywide, statewide, or even nationally, depending on your business’s reach).
• What happens if it’s breached? (e.g. damages, an injunction to stop further breaches, and possibly forcing the person to pay your legal costs).

Carefully drafted restraint deeds often use what’s called a “cascading clause”, setting out several combinations of restraint periods and areas in order from strongest to weakest. If a court finds the broadest version unreasonable (for example, 5 years nationwide), it may still enforce a narrower version (like 12 months within the city).

It’s important to draft these details carefully - a restraint that’s too broad may be thrown out altogether. To ensure enforceability, always seek legal guidance from a specialist in business contracts.

What’s A Good Restraint Of Trade Clause Example?

Practical examples help clarify how these clauses work. Here’s a typical restraint of trade clause example - sale of business:

“The Seller must not, for a period of 24 months after completion, either directly or indirectly engage in a business that competes with the Business in the state of New South Wales, or solicit or accept business from any clients of the Business, or hire any employees of the Business, without the prior written consent of the Buyer.”

For employment contracts, a restraint clause might look like:

“The Employee agrees that for a period of 12 months after leaving employment, and within a 30km radius of any office of the Employer, the Employee will not work for or establish a business that competes with the Employer, or directly solicit any clients or employees of the Employer.”

You'll notice each clause clearly sets out the restraint period, the restraint area, and the types of activities being restrained. This clarity is vital if you ever need to rely on the clause in a legal setting.

For more restraint clause templates and examples tailored for Australia, check out our guide on restraint clauses in business contracts.

How Long Should A Restraint Period Last?

There’s no one-size-fits-all answer - it comes down to what’s reasonable to protect your business’s legitimate interests. Courts in Australia will generally enforce a restraint period if it’s:

• Necessary to protect things like your confidential information or client relationships.
• Not excessive (e.g., typically 6–24 months for employment, potentially longer - up to 5 years - for sale of business where more is at stake).
• Not drafted so broadly that it unfairly stops someone from working or earning a living in their chosen field.

In the context of a business sale, a longer restraint period is more likely to be enforced because the buyer is paying for the goodwill and needs real protection. For employees, the restraint should reflect their level of seniority and access to sensitive information - the more critical they are, the more extensive a restraint could reasonably be justified.

If your industry moves quickly, a long restraint may be unnecessary. It’s also wise to use a cascading structure (multiple options, from longest/broadest to shortest/narrowest) to increase your chances of enforceability if challenged in court.

Want to understand how long your restraint period should be? Get guidance from our legal team.

Are Restraint Of Trade Clauses Enforceable In Australia?

Australian courts generally do not look kindly on restraint clauses if they go beyond what is reasonably necessary. That’s why careful, experienced drafting is so important. To be enforceable, your clause (or deed) must:

• Protect a legitimate business interest (such as confidential information, client relationships, or goodwill).
• Be limited in duration (restraint period), area (restraint area), and type of activity.
• Not be oppressive or anti-competitive in a way that’s against the public interest.
• Be clearly defined, so the restrained person knows what they are (and aren’t) allowed to do.

For example, a restraint that prevents a former admin staff member from working in their field anywhere in Australia for 5 years is almost certainly unenforceable. But a targeted restraint on a seller of a business - preventing them from setting up the same business within 10km for three years - may well be upheld.

Courts also prefer to “read down” cascading clauses, keeping the parts that are reasonable and stripping out those that are excessive. This is why professional legal drafting - using knowledge of what’s commonly enforced in Australian courts - is key to protecting your business.

Read more about contract fairness and enforceability in Australia.

What Laws Apply To Deeds Of Restraint In Australia?

While restraint of trade is largely governed by common law (judge-made law), there are a few important statutory considerations:

• The Competition and Consumer Act 2010 (Cth) prohibits certain types of anti-competitive agreements (though most standard restraints in contracts are not caught by these provisions).
• If the restraint forms part of a sale of business or transfer of assets, you’ll also need to consider Australian Consumer Law (ACL), especially on issues of misleading conduct or warranties.
• For employment relationships, courts apply the “reasonableness” test much more strictly - protecting employees’ rights to work is viewed as a matter of public policy.

There are also various state-based nuances, but the key is always whether the restraint is no more restrictive than necessary to protect your genuine business interests.

What Legal Documents Should I Consider?

In addition to (or as part of) a deed of restraint, Australian businesses should consider having the following legal documents in place:

• Employment Contract: Includes clear restraint of trade, confidentiality, and non-solicitation clauses appropriate to the employee’s role. Here’s our guide to employment contracts.
• Business Sale Agreement: If you’re buying or selling, a well-drafted contract should set out the agreed restraints on the seller to protect the purchased goodwill - see more on buying or selling a business in Australia.
• Confidentiality Agreement (NDA): Keeps sensitive business information protected during and after negotiations or engagement with staff/contractors.
• Service Agreement: For contractors and consultants, outlines acceptable conduct and post-engagement restrictions.

Every business will have unique needs - so it's a good idea to seek advice on which documents suit your setup. You can read our checklist of key legal documents for businesses here.

Tips For Setting Up Your Restraint Clauses The Right Way

• Be specific about the restrained activity, timeframe (restraint period), and area (restraint area).
• Avoid “blanket bans” - courts won’t enforce restraints that are too broad or general.
• Use cascading clauses with decreasing scope to increase enforceability.
• Only restrain employees or sellers as much as needed to protect your interests - not just to prevent competition.
• Get tailored legal drafting - don’t copy and paste clauses, as every business is different and your risk profile changes.

Need help reviewing your agreements? Ask Sprintlaw’s contract lawyers to review your restraint clauses for best protection.

Key Takeaways

• A deed of restraint is a specialised legal tool that helps protect your business when someone leaves or sells up by setting clear boundaries on what they can do next.
• Effective restraint clauses should carefully define the restrained activity, period, and area, and go no further than reasonably necessary for your business’s protection.
• Australian courts will only uphold restraint of trade clauses if they meet the “reasonableness” test - drafting them too broadly could mean they’re thrown out entirely.
• Each business requires different restraint protection, so getting legal advice is crucial to make sure your agreements are enforceable and tailored to your needs.
• Deeds of restraint are commonly used in employment, contractor, partnership, and sale of business contexts - sometimes forming part of broader agreements like sale contracts and employment agreements.
• Always use cascading restraint clauses to maximise the chance of legal enforceability if your restraint is ever challenged in court.

If you would like a consultation on using a deed of restraint to protect your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.