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The success of someone’s business depends largely on their employees. Every day, they work towards the success and future prosperity of your business.
However, hearing of an employee setting up a competing business can be a serious threat to that success. In today’s highly competitive 2025 market, after working closely with you and having access to certain data, it’s likely that they know your trade secrets, confidential information and business strategies.
This sensitive knowledge, if not properly protected, could empower a competitor and erode your hard-earned market advantage. To safeguard your business interests and maintain your competitive edge, it’s crucial to have robust legal measures in place.
My Employee Is Setting Up A Competing Business – What Do I Do?
Whether or not your employee can legally set up a competing business will depend on the specific Employment Contract you have in place. Ensuring your contract is up-to-date with current 2025 legal requirements is essential.
This Employment Contract should incorporate a series of legal mechanisms that protect your business. If your employee is setting up a competing business, your first step is to review their Employment Contract for any protective provisions – and if needed, update it in line with the latest legal developments such as those discussed in our Business Legal Requirements guide.
One of the most common ways to protect your business is to include a Non-Compete Clause when the contract is first drafted. This clause can also be set out in a separate document, known as a Non-Compete Agreement. For additional guidance on drafting comprehensive contracts, consider our resources on Employment Contract best practices.
For the purposes of this article, the terms “agreement” and “clause” will be used interchangeably.
So, what exactly does a Non-Compete Clause do?
What Is A Non-Compete Agreement?
A Non-Compete Agreement is a legal document designed to prevent employees from either:
- Setting up a competing business
- Working for an existing competitor
The effect and scope of this clause will depend on its drafting. It’s imperative that you tailor the restriction to reflect the employee’s role and the sensitivity of the information they access.
Why Do I Need A Non-Compete Agreement?
Every business must continuously guard against competitive threats, especially when a current or former employee gains intimate knowledge of your operations. In 2025, as markets evolve rapidly with new technologies and business models, this risk has become even more pronounced.
Your employees understand your strengths, weaknesses and internal processes. If this information is misused, it could severely undermine your competitive advantage. A well-drafted Non-Compete Agreement helps to minimise such risks.
Confidential information typically includes anything from trade secrets and intellectual property to client lists, internal policies and operating procedures. For broader protection of your brand, you might also explore our article on Trade Marks: What and Why.
What Does A Non-Compete Agreement Usually Include?
A typical Non-Compete Agreement outlines the geographic limits and the duration for which the restrictions apply. For example, it might state that the employee is prohibited from setting up a competing business within a 10-kilometre radius of your established premises.
The agreement may also detail the length of time the restriction is effective — commonly 12 months, although this can be adjusted depending on the employee’s role and access to sensitive information.
Additionally, the agreement should define the scope of the business activities covered by the Non-Compete Clause. For instance, if you operate a retail clothing store, the clause might restrict the establishment of similar clothing outlets while allowing for other types of businesses. For further clarity on drafting such provisions, our guide on Employment Contracts offers useful insights.
| Example If you operate an online clothing store and a former employee wishes to start a similar venture within your region, they may be subject to your Non-Compete Clause. Your clause might prohibit the establishment of any clothing store within a 10km radius for a period of 2 years. However, if the former employee starts a business in a different sector, such as a salon, the clause would not apply if it is specifically limited to clothing retail. This is why it’s critical to have your clause carefully drafted; it should clearly define the restrictions to avoid overreaching. For expert advice, consider our Employment Contract review service. |
Non-Compete Clauses can also incorporate non-solicitation provisions to prevent former employees from targeting your clients and key staff. As maintaining strong client relationships is fundamental to your revenue, safeguarding this connection is paramount. To learn more about protecting key business assets, please refer to our insights on Business Partnership Agreements.
Enforcing A Non-Compete Clause
For a Non-Compete Clause to be enforceable, it must be reasonable and specifically tailored to protect your legitimate business interests. This includes clearly defining the geographic area, duration, the scope of restricted activities, and any non-solicitation measures.
If the clause is overly restrictive—more so than necessary to protect your interests—it risks being struck out by the courts. Therefore, it is vital to ensure that the restrictions are proportionate to the employee’s role and the sensitivity of the information they handle.
One way to introduce flexibility is through the use of cascading clauses. These offer alternative restriction periods; for example, a clause might state “the restraint period is 12 months, or if that period is found to be invalid or unenforceable, then 6 months.” This approach provides additional security in case part of the clause is adjusted by the courts. For further reading, check out our article on Cascading Clauses.
How Else Can I Prevent Competition?
In addition to Non-Compete Agreements, there are several alternative strategies to mitigate the risk of employee competition.
Trade Secrets
A trade secret covers any confidential information that is central to your business performance—whether it’s a secret recipe, a manufacturing process, or proprietary technology. The value of such information lies in its secrecy; once it becomes public knowledge, its competitive edge is lost.
Ensure you protect this information by strictly controlling access and using robust legal agreements.
Confidentiality Clause
Inserting a Confidentiality Clause into your Employment Contract is one of the most common ways to safeguard sensitive information. This clause should define ‘confidential information’ comprehensively – covering everything from client databases and trade secrets to internal policies and operating procedures.
For further details on building effective confidentiality measures, explore our related resources that outline best practices in safeguarding intra-company information.
Patents
A patent grants an exclusive right to a new, inventive, and useful device, substance, method, or process. In 2025, securing a patent remains one of the most robust forms of intellectual property protection. Prior to a patent being granted, IP Australia carefully examines the application to ensure it meets current legislative and inventive standards.
Given that the examination process can take from six months to several years, it is prudent to consider patent protection at the earliest stage of product development.
Register A Trade Mark
Trademarking a distinctive element of your business, such as your brand name or logo, provides blanket protection that not only reinforces your identity but also deters competitors. A registered trademark lasts for 10 years and can be renewed indefinitely. For more information about the process and its benefits, see our comprehensive piece on Trade Marks: What and Why.
Copyright
Copyright protection can be an effective deterrent against competition for original works that are fixed in a tangible form. It is important to note, however, that copyright does not protect abstract ideas—only their concrete expression. If your creative works qualify under the Copyright Act, they are automatically protected.
For a detailed overview on how to safeguard your creative outputs, please refer to our Copyright Protection resource.
Non-Disclosure Agreement
A Non-Disclosure Agreement (NDA) restricts the disclosure of sensitive business information to third parties. In an employment context, an NDA helps ensure that confidential information remains secure even after the working relationship ends – a critical consideration for high-level employees with access to proprietary data.
Key Takeaways
Employees inherently gain deep insights into your business; therefore, it is essential to prevent them from misusing this knowledge.
Implementing robust legal mechanisms—such as Non-Compete Clauses, Confidentiality Clauses, NDAs, and even intellectual property protections like patents and trademarks—can safeguard your trade secrets and maintain your competitive edge.
These tools are not mutually exclusive; for example, you can enforce a broad confidentiality clause in your Employment Contract while also protecting key innovations through registered patents or trademarks. Revisiting and updating these agreements regularly is paramount, especially with evolving legal precedents in 2025.
For more tailored advice on protecting your business, you can contact our team at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligation consultation.
Furthermore, we recommend periodic legal reviews of your employment documents alongside our Employment Contract review service to ensure your contracts remain enforceable and reflect current 2025 legal standards.
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