Drafting Reasonable Restraint Clauses: Insights From Just Group Ltd v Peck

When a key employee moves on, the risks to your business can be real - from client poaching to sensitive information being used by a competitor.

That’s why many Australian employers include restraint of trade clauses (often called non-compete and non-solicit provisions) in their contracts.

But broader isn’t better. A restraint will only be enforced if it goes no further than reasonably necessary to protect your legitimate business interests. The Victorian Court of Appeal’s decision in Just Group Ltd v Peck is a clear reminder that overreach can backfire - and courts won’t fix a fundamentally excessive clause for you.

In this guide, we unpack what happened in Just Group, what “reasonable” looks like under Australian law, and how to draft restraint clauses that are more likely to stand up - while still letting a former employee keep earning a living.

What Happened In Just Group Ltd v Peck?

The case involved a senior executive who resigned from a national fashion retailer to join another fashion group. The employment contract included a “cascading” restraint with multiple alternatives for duration, geography and activities. The idea was that if the broadest option was too wide, a court could enforce a narrower alternative.

On paper, the scope was extensive. The clause imposed lengthy periods, wide geographic areas, and sweeping activity restrictions - including stopping the former executive from working “in any capacity” for a competitor, not just in a similar role.

The employer argued those restraints were needed to protect confidential information and customer connections. The employee said the clause went too far.

The Victorian Court of Appeal agreed with the employee on key points. The Court accepted the employer had legitimate interests worth protecting (such as confidential information and client relationships), but the drafting needed to be calibrated to those interests. A blanket ban on working anywhere in the industry “in any capacity” was disproportionate to the risk and therefore unreasonable.

Critically, the Court didn’t “rescue” the restraint by picking a narrower option if none of the alternatives were reasonable on their scope, activities, geography and time. A cascading format is not a magic wand - the content still needs to land in a reasonable place.

The message is simple: courts won’t rewrite your contract. If you want a restraint to work, draft it to match the real risks you’re trying to manage.

What Does “Reasonable” Look Like Under Australian Law?

Under Australian common law, a restraint of trade is void unless it is no more than reasonably necessary to protect the employer’s legitimate business interests. That starting point applies across Australia.

There is one important state-based wrinkle. New South Wales has the Restraints of Trade Act 1976 (NSW), which gives NSW courts limited power to “read down” a restraint to make it reasonable. That power is unique to NSW. Victoria (the jurisdiction in Just Group) does not have equivalent legislation, so courts apply the common law and will not rewrite an overbroad clause. If a Victorian restraint is drafted too widely and cannot sensibly be severed, it risks being unenforceable.

Legitimate Interests You Can Protect

• Confidential information and trade secrets (for example, pricing strategy, non‑public financials, margin data, roadmaps and product calendars).
• Customer and supplier relationships, particularly where the employee was the “face” of your business to those clients or vendors.
• Workforce stability, such as preventing a departing leader from soliciting your key team members to follow them.

Reasonableness: The Core Factors Courts Consider

• Activities: Focus on what the person actually did - and could realistically leverage - in their role. A ban on working “in any capacity” for a competitor is rarely justified.
• Duration: Choose a period that aligns with how long your information stays current and how long client relationships remain vulnerable. Often this is months, not years, unless you can justify longer.
• Geography: Limit the area to where your business genuinely operates or where the employee had influence, rather than defaulting to “Australia-wide.”
• Seniority and access: Seniority matters, but access counts more. A junior employee with limited client control may need little to no restraint, while a C‑suite executive may justify tighter limits.
• Industry context: How quickly does information go stale? How portable are client relationships? Courts will look at commercial reality.

A practical test emerges from Just Group: could the employee realistically harm your protectable interests if they did the restrained activity, in that place, for that time? If the answer is no, trim it.

Practical Drafting Tips That Work In The Real World

Getting a restraint right is about aligning the clause with the risks of the role. Use the following checklist with your lawyer to calibrate scope and support enforceability.

1) Be Clear About Competitors And Roles

Describe the types of competitors that matter (e.g. multi‑brand apparel retailers above a turnover threshold) and the functional roles that present a real risk (e.g. senior finance leadership), rather than banning employment “in any capacity.” Where helpful, include a schedule of known competitors and update it periodically.

If you genuinely need a non‑compete for a particular role, anchor it to the employee’s responsibilities and access to information and reflect that in a tailored Non-Compete Agreement.

2) Right‑Size The Time Period

Pick a duration that mirrors how long your information remains competitively sensitive and how long client relationships are at risk post‑departure. Many employers use a short, thoughtful cascade (for example, 3, 6, 9 months) so a court can select the shortest reasonable option if needed.

3) Limit The Territory To Where It Matters

Define geography around where the employee actually worked or where the business trades. For example, “within 10 km of any store the employee managed,” or “within Australia” if the role truly had a national remit. Avoid global or country‑wide restraints unless the facts support it.

4) Separate Non‑Solicit From Non‑Compete

Non‑solicitation obligations (not approaching your customers, staff or suppliers) are more defensible than a full non‑compete. Use both where warranted, but justify each restriction on its own terms. Clear, standalone non‑solicit provisions often survive even where a non‑compete fails.

5) Define “Confidential Information” Properly

List the categories that matter to your business, tie them to operational controls, and make sure the definition doesn’t sweep in general knowledge or skills. For broader protection in collaborations and interviews, use a Non-Disclosure Agreement alongside your employment documents.

6) Support Restraints With Operational Tools

• Garden leave: If your contract allows it, garden leave can keep a departing employee out of the market during their notice period while obligations (and salary) continue. Here’s how garden leave in Australia typically operates.
• Contracts and policies: Ensure your Employment Contract covers conflicts of interest, IP assignment, confidentiality, return of property and cooperation post‑employment.
• Access controls: Limit “need‑to‑know” access to sensitive data and keep audit logs. Operational discipline strengthens the argument that your information is truly confidential.

7) Draft Cascading Clauses With Care (Especially Outside NSW)

A cascade can help - but only if each alternative is itself reasonable. As Just Group shows, courts won’t pick from a menu of unreasonable options. In NSW, the Restraints of Trade Act can allow reading down, but the starting options still need to land in a sensible range. Quality beats quantity.

Enforcing Restraints: Proportionate Steps, Evidence And Options

Even a well‑drafted restraint only helps if you enforce it sensibly and quickly. Here’s a measured approach employers often take.

Step 1: Triage And Preserve Evidence

Move swiftly but stay calm. Preserve email logs, access records, download reports, exit interview notes, and the signed contract and policies. Record what you know, what you suspect, and why it matters (for example, at‑risk clients or specific product plans).

Step 2: Send A Targeted Letter

A focused letter to the former employee (and sometimes the new employer) can set expectations and avoid court. Identify the precise restraints, the concerning conduct, and practical mitigations (e.g. “do not contact named clients for 6 months” and “return or delete specific datasets”).

Step 3: Consider Commercial Resolutions

Many disputes settle early, often documented in a Deed of Settlement. Typical outcomes include undertakings, acknowledgements of confidentiality, short stand‑down periods, or agreed client carve‑outs - tailored to the actual risks on both sides.

Step 4: Court Options (When Necessary)

If harm is imminent and undertakings aren’t given, urgent injunctive relief may be appropriate. Courts weigh the balance of convenience, the strength of your case, and whether the restraint is reasonably necessary. Your prospects improve when the restriction is measured and your evidence is clear.

Alternatives To A Full Non‑Compete

Sometimes a full non‑compete is unnecessary or hard to justify. Consider tighter confidentiality controls, robust non‑solicit obligations, using garden leave during notice, and limiting access to sensitive information well before resignation. These can be easier to enforce and less disruptive.

Restraints In Business Sales: A Different Setting

Restraints tied to a sale of business are treated more liberally than employment restraints. The buyer pays for goodwill and needs a reasonable buffer from immediate competition by the seller.

Even so, sale restraints must still be reasonable. Courts look at the nature of the business, the price paid, the territory of the goodwill and the seller’s historical involvement. Use a tailored restraint in your Business Sale Agreement rather than a generic clause. A well‑designed cascade of time and area options, backed by evidence of the goodwill’s reach, is common.

If you’re buying or selling a business, your due diligence should test whether the restraint is fit for purpose and defensible. It’s often a key negotiation lever and worth getting right before signing.

How Just Group Shapes Best Practice For Employers

Just Group doesn’t say you can’t use restraints. It says you need to be deliberate. Here’s how the judgment translates into day‑to‑day drafting habits.

• Start with the risks, not a template. Identify the information and connections that truly need protection - and for how long.
• Match the clause to the role. The more access and influence a role has, the more robust (and defensible) the restraint can be - within limits.
• Use precise language. Define competitors, activities and territories so the clause operates only where it needs to.
• Prioritise non‑solicit and confidentiality. Reserve non‑competes for roles where the risk genuinely warrants it, and mirror that in a targeted Non-Compete Agreement.
• Support the restraint operationally. Access controls, handover protocols and garden leave help demonstrate reasonableness.
• Review regularly. Markets and roles change. Refresh restraints when senior employees are promoted or responsibilities shift, and ensure your base Employment Contract keeps pace.

Worked Example: Tailoring A CFO Restraint

Let’s say you’re hiring a CFO for a national retail network. What might a reasonable restraint look like?

• Activities: Restrict senior finance leadership roles for a defined competitor cohort (e.g. multi‑brand apparel retailers above a nominated turnover), rather than “any capacity.”
• Duration: 6–9 months post‑employment, aligned to the shelf‑life of budgeting, margin and pricing strategies.
• Geography: Australia (if the role is national) or narrower if the remit was regional.
• Non‑solicit: 9–12 months for named strategic suppliers and the finance team the CFO directly managed.
• Confidentiality: A clear definition covering non‑public financials, product calendars and vendor terms, supported by need‑to‑know access controls and a standing Non-Disclosure Agreement for third‑party interactions.
• Garden leave: A contractual right to place the employee on garden leave during notice to reduce the risk that “live” information follows them out the door.

With that structure, you can credibly explain why the scope, time and area are necessary - and you avoid the overreach that sank the restraint in Just Group.

Key Takeaways

• Courts will only enforce restraints that go no further than reasonably necessary to protect legitimate interests like confidential information, client relationships and team stability.
• Just Group Ltd v Peck is a cautionary tale: sweeping “in any capacity” bans and over‑broad cascades won’t be saved - especially in jurisdictions without legislation like NSW’s Restraints of Trade Act.
• Draft with precision: limit activities, set a defensible duration, pick a relevant territory and align the clause with the employee’s actual role and access.
• Separate and prioritise non‑solicit and confidentiality; reserve non‑competes for roles where the risk truly warrants it and reflect that in a tailored Non-Compete Agreement.
• Back up your drafting with operations - access controls, handover protocols, garden leave - and keep your base Employment Contract current.
• If a dispute arises, act quickly, preserve evidence, try proportionate undertakings or a Deed of Settlement, and only then consider court action.
• Sale of business restraints are treated more liberally but must still be reasonable; use a tailored restraint in your Business Sale Agreement.

If you’d like help calibrating or enforcing post‑employment restraints for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.