Restraint Clause Examples: Drafting Enforceable Clauses In Australia

If you’re building a startup or growing an SME, you’re probably investing heavily in things that don’t sit on your balance sheet in a neat, obvious way: your customer relationships, your processes, your pricing model, your product roadmap, and the know-how your team develops over time.

That’s exactly why restraint of trade clauses matter. A well-drafted restraint can help reduce the risk of a key person leaving and immediately competing, poaching your clients, or taking your team with them.

But restraints can also be one of the most misunderstood contract clauses in Australia. If you get them wrong, they can be difficult (or impossible) to enforce. If you get them right, they can be a practical, commercially sensible tool to protect what you’ve built.

Below, we’ll walk through what makes a restraint enforceable, what courts tend to care about, and (most importantly) provide a few practical restraint clause example drafts you can adapt for common small business scenarios.

What Is A Restraint Of Trade Clause (And What Is It Really Protecting)?

A restraint of trade clause (often shortened to “restraint clause”) is a contract term that limits what someone can do after their engagement ends, such as:

• working for a competitor;
• starting a competing business;
• soliciting (approaching) your customers or suppliers; or
• poaching your staff or contractors.

For startups and SMEs, restraints are usually included in:

• employment agreements (especially for senior staff, sales roles, or technical leaders);
• contractor agreements (where contractors have access to clients and confidential information);
• founder and shareholder documents (to keep the founding team aligned); and
• sale of business agreements (to protect goodwill when you buy or sell a business).

It’s worth calling out a common misconception: restraints are not designed to “punish” someone for leaving. They’re designed to protect your legitimate business interests. That distinction is critical when it comes to enforceability.

In practice, a restraint clause usually works alongside other key protections, like confidentiality and intellectual property ownership. If you’re drafting your contracts from scratch, it’s also important the broader agreement is properly formed with clear offer and acceptance and terms that reflect how you actually operate day-to-day.

Are Restraint Clauses Enforceable In Australia?

Restraint clauses can be enforceable in Australia, but they’re not automatically enforceable just because they’re written in a contract.

As a general principle, restraints of trade are presumed to be void unless the party seeking to enforce the restraint can show that the restraint:

• protects a legitimate business interest (not just “we don’t want competition”); and
• is reasonable in scope (duration, location, and activities restrained) in the circumstances.

What Counts As A “Legitimate Business Interest” For SMEs?

For startups and SMEs, legitimate interests commonly include:

• Confidential information (pricing, product plans, proprietary processes, source code, supplier terms);
• Customer connections and goodwill (especially where the person had a close relationship with clients);
• Workforce stability (protecting against key team members being recruited away); and
• Investment in training (sometimes relevant, but usually not enough on its own).

If you’re relying on a restraint, it should be backed by good contract hygiene more broadly. For example, properly drafted Employment Contract terms and clear definitions of “confidential information”, “client”, and “business” make the restraint easier to interpret and enforce.

Reasonableness: The Three Levers Courts Look At

Most restraint disputes come down to whether the clause goes further than necessary. Courts commonly assess reasonableness by looking at:

• Time (how long does the restraint last?);
• Geography (where does it apply?); and
• Scope (what activities are restricted?).

A restraint that tries to block someone from working “anywhere in Australia for 2 years in any capacity for any business that competes with you” will often be difficult to justify for many SMEs (even if it feels commercially desirable).

A narrower restraint (for example, a 3–6 month non-solicit of clients the person actually dealt with) is usually easier to defend because it’s more clearly connected to your goodwill and customer relationships.

Restraint Clause Example Drafts For Common Startup And SME Scenarios

Below are several restraint clause example drafts. They’re written in plain English and structured the way we often see clauses drafted for Australian small businesses.

These examples are general information only and do not constitute legal advice. The right drafting depends on your role types, industry, sales cycle, customer concentration, the State or Territory your contracts are governed by, and where you operate.

Example 1: Non-Solicitation Of Clients (Employee Or Contractor)

This is one of the most commercially useful restraints for SMEs, because it’s targeted: it doesn’t stop someone from working, but it aims to protect your client relationships.

Restraint Clause Example (Client Non-Solicit)

Non-Solicitation Of Clients
The Worker must not, during the Restraint Period, directly or indirectly solicit, canvass, approach or deal with any Client for the purpose of providing goods or services that are the same as, or similar to, the Restricted Services.

Definitions
“Client” means any person or entity that, in the 12 months before the Termination Date:
(a) was a client or customer of the Business; and
(b) the Worker had Material Dealings with.

“Material Dealings” means direct involvement by the Worker in providing services to the Client, managing the account, preparing proposals, pricing, or maintaining the relationship.

When this tends to work best: sales roles, account managers, client success roles, consultants embedded in client delivery, and senior staff with client relationships.

Tip: if you use contractors, make sure the contractor agreement and IP/confidentiality clauses are consistent with your restraint approach. Many small businesses use a dedicated Contractors Agreement to keep these protections clear.

Example 2: Non-Poaching Of Staff (Workforce Restraint)

If your business is lean, losing one person can hurt. Losing three at once because a leader recruits them to a new venture can be devastating. This is why non-poach clauses are common in senior hires and founders.

Restraint Clause Example (Employee Non-Poach)

Non-Solicitation Of Staff
The Worker must not, during the Restraint Period, directly or indirectly solicit, induce, encourage or attempt to entice away any employee or contractor of the Business to cease working for the Business or to work for a Competing Business.

This clause applies only to employees or contractors with whom the Worker worked closely or had direct managerial responsibility during the 12 months before the Termination Date.

Why the “worked closely” limitation matters: it helps the restraint stay connected to a real business interest (team stability) and reduces the chance the clause is seen as too broad.

Example 3: Non-Compete (Usually For Senior Roles Only)

A non-compete is the most restrictive type of restraint because it can limit where someone can work. For that reason, you generally want to use it carefully and draft it narrowly.

Restraint Clause Example (Non-Compete)

Non-Competition
The Worker must not, during the Restraint Period and within the Restraint Area, be engaged or interested in a Competing Business where the Worker’s role would be the same as, or substantially similar to, the Worker’s role with the Business in the 12 months before the Termination Date.

This clause does not prevent the Worker from holding up to 5% of shares in a publicly listed company.

Drafting note: this kind of clause is often paired with cascading options (for example, 12/6/3 months and Australia/State/Metro area) to improve the chance a court will enforce a reasonable “step down” option rather than striking the whole thing. Treatment of cascading clauses can vary by jurisdiction and drafting style, so they should be approached carefully.

If you’re using a non-compete, it’s worth getting it reviewed as part of your overall restraint strategy, including whether you need a standalone Non-Compete Agreement or whether it should sit inside a broader employment/contractor contract.

Example 4: Cascading Restraints (Time + Area + Scope)

Cascading restraints (sometimes called “ladder” clauses) set out multiple combinations of duration, geography and scope, usually drafted as alternatives. The idea is that if the broadest option is unreasonable, a narrower option may still be enforceable.

Restraint Clause Example (Cascading)

Restraint
The Worker must not, during the Restraint Period and within the Restraint Area, perform Restricted Activities for a Competing Business.

Restraint Period means whichever of the following periods is found to be valid and enforceable:
(a) 12 months; or if that is unenforceable
(b) 6 months; or if that is unenforceable
(c) 3 months.

Restraint Area means whichever of the following areas is found to be valid and enforceable:
(a) Australia; or if that is unenforceable
(b) the State or Territory in which the Worker primarily performed the services; or if that is unenforceable
(c) a 20km radius from the Business’s principal place of business.

Restricted Activities means whichever of the following is found to be valid and enforceable:
(a) providing services substantially similar to the Worker’s role; or if that is unenforceable
(b) soliciting or dealing with Clients the Worker had Material Dealings with; or if that is unenforceable
(c) using Confidential Information to compete with the Business.

Practical takeaway: cascading clauses can sometimes improve enforceability, but they’re not treated uniformly across Australia and they need careful drafting (and clean definitions) so the clause is still readable and not internally inconsistent.

Example 5: Restraint In A Sale Of Business (Protecting Goodwill)

If you’re buying a business (or selling yours), restraints are often more enforceable because the buyer is paying for goodwill. Without a restraint, the seller could take the goodwill they just sold and rebuild it next door.

Restraint Clause Example (Vendor Restraint)

Vendor Restraint
The Seller must not, during the Restraint Period and within the Restraint Area, carry on, be engaged in, or be concerned with a Competing Business that provides goods or services substantially similar to the Business as at Completion.

The Seller must not, during the Restraint Period, solicit or approach any customer, supplier or employee of the Business for the purpose of competing with the Business.

Drafting note: sale-of-business restraints are usually negotiated heavily and should align with the actual business footprint (where customers are, where services are delivered, and how long goodwill is expected to last).

How Do You Draft A Restraint Clause That’s More Likely To Be Enforceable?

The best restraints are specific, commercially grounded, and properly integrated into your contract suite. Here’s a practical checklist you can use when you’re drafting or reviewing a restraint clause.

1) Start With The Business Interest You’re Protecting

Before you write a single word, get clear on what you’re actually trying to protect:

• Is it client relationships in a particular niche?
• Is it your staff being poached?
• Is it confidential product strategy?
• Is it all of the above, but only for senior roles?

This matters because restraints are easier to justify when you can explain “why” they’re needed. If you can’t explain it, it’s often a sign the restraint is too broad.

2) Be Realistic About Timeframes

The “right” restraint period depends on your business model and sales cycle.

• If your customer contracts are short and relationships turn over quickly, a long restraint can look excessive.
• If your sales cycle is 6–12 months and relationships are sticky, a longer non-solicit may be easier to justify.

Many SMEs find a 3–6 month non-solicit is a sensible starting point, with longer periods reserved for high-risk roles (or sale-of-business scenarios).

3) Keep Geography Tied To Where You Actually Compete

Geography should reflect commercial reality. If your business is Australia-wide, it may be reasonable to define a wider area. If you’re local (or only compete in a specific market), a nationwide restraint can be hard to defend.

If your services are online, the “geography” issue doesn’t disappear. Instead, you may need to define restraint by customer segment, service type, or specific client list (non-solicit/non-deal) rather than drawing a circle on a map.

4) Define “Competing Business” And “Restricted Activities” Clearly

Vague terms like “any business similar to ours” can create uncertainty (and disputes).

Instead, define:

• Competing Business by reference to specific goods/services and markets;
• Restricted Services as the services the person provided for you (or had responsibility for); and
• Clients as clients the person actually dealt with (not everyone who ever bought from you).

Clarity also helps ensure the restraint sits comfortably within the broader agreement. If you’re refreshing your contract suite, it’s useful to check the restraint is consistent with the rest of your terms and with general contract enforceability principles (including what makes a contract legally binding in the first place).

5) Match The Restraint To The Role (Don’t Copy/Paste Across Everyone)

A common small business mistake is using one “standard” restraint clause for every team member, regardless of seniority or access to sensitive information.

In practice:

• a junior operational role may only justify confidentiality obligations (and perhaps a narrow staff non-poach);
• a sales lead may justify a stronger client non-solicit/non-deal; and
• a CTO, head of product, or general manager may justify a carefully drafted non-compete (often with cascading options).

6) Make Sure Your Contracts And Policies Support The Story

Enforcement often comes down to evidence: what information did the person access, what relationships did they manage, and what risk is there if they compete?

Restraints are stronger when you can show you actually treated information as confidential (for example, you had confidentiality clauses, access controls, and clear IP ownership terms).

For founders and growth-stage companies, your structure documents can also play a role in expectations and governance. Depending on how you’ve set up your company, documents like a Company Constitution and a Shareholders Agreement can complement (but not replace) role-specific restraints.

Common Mistakes SMEs Make With Restraint Clauses (And How To Avoid Them)

Even well-intentioned restraints can be hard to enforce if they’re drafted in a way that looks unfair or disconnected from your business needs. Here are the most common issues we see.

Making The Restraint “As Broad As Possible”

It’s understandable: you want to be protected. But overly broad restraints often become legally fragile. A narrower, role-specific restraint is usually more effective than a “kitchen sink” restraint that tries to cover everything.

Using A Non-Compete When A Non-Solicit Would Do The Job

From a risk-management perspective, non-solicitation and non-dealing clauses often provide strong protection of customer relationships without stopping someone from earning a living.

If your main concern is “don’t take our clients,” a targeted client non-solicit is usually a better starting point than a broad non-compete.

Not Updating The Restraint As The Business Evolves

Startups move quickly. The role you hired someone into might change dramatically in 12 months.

If someone starts as a developer and later becomes head of engineering with deep access to product strategy and major client escalations, your restraint and confidentiality provisions should be reviewed to match the updated risk profile.

Forgetting The Practical Side: Enforcement And Evidence

Even with a strong clause, you may need to move quickly if there’s a real breach (for example, immediate solicitation of clients). Your agreement should be drafted clearly enough that you can point to what’s prohibited without needing pages of explanation.

If you’re unsure whether your restraint is likely to hold up, getting tailored advice early is usually cheaper than trying to fix problems once a dispute is already underway. In many cases, it’s worth a targeted review through restraint of trade advice before you roll contracts out across your team.

Key Takeaways

• A restraint clause example can be a helpful starting point, but enforceability in Australia depends on whether the restraint is reasonable and protects a legitimate business interest.
• For many startups and SMEs, non-solicit and non-poach clauses are often more practical (and easier to justify) than a broad non-compete.
• The “best” restraint is role-specific and tied to real risks like client relationships, confidential information, and workforce stability.
• Cascading restraints (multiple options for time/area/scope) can sometimes improve enforceability, but they’re not treated uniformly across Australia and they need careful drafting and clear definitions.
• Restraints should sit within a broader contract framework (employment or contractor agreements, confidentiality, IP ownership, and consistent governance documents).

If you’d like help drafting or reviewing a restraint clause for your startup or SME, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.