Restraint Clauses In Employment Contracts: Restraint Periods For Employers In Australia

Hiring and training great people is one of the biggest investments you’ll make as a small business owner.

But when an employee leaves - especially someone senior, client-facing, or with access to sensitive information - it’s natural to worry about what happens next. Will they take your customers? Will they use your pricing, strategy or supplier arrangements to compete? Will they poach your team?

This is where a restraint clause can be a useful tool. When it’s drafted properly, a restraint clause in an employment contract helps protect your goodwill, confidential information, and business relationships.

Below, we’ll break down what restraint clauses are, what a restraint period in an employment contract actually means, what makes a restraint enforceable in Australia, and how to structure your restraint periods so they’re more likely to stand up if tested.

What Is A Restraint Clause (And What Is A Restraint Period)?

A restraint clause (sometimes called a restraint of trade clause) is a term in an employment contract that limits what a departing employee can do after their employment ends.

In practical terms, restraint clauses in employment contracts usually aim to stop an employee from doing one or more of the following for a certain period of time:

• working for a competitor
• starting or running a competing business
• approaching or dealing with your clients/customers
• poaching your staff or contractors
• using or disclosing confidential information

When people ask what a restraint period in an employment contract is, they’re talking about the length of time the restrictions apply after the employee leaves.

For example, a restraint period in an employment contract might say the employee must not solicit your clients for 6 months after leaving, within a 10km radius of your premises (or within Australia, depending on the business).

Common Types Of Restraint Clauses In Employment Contracts

It’s helpful to think of a restraint clause employment contract as a group of related protections. The most common types are:

• Non-compete restraints: prevents a former employee from working with a competitor or running a competing business.
• Non-solicitation restraints: prevents them from approaching or “soliciting” your customers/clients, suppliers, or staff.
• Non-dealing restraints: goes further than non-solicitation by preventing the employee from dealing with certain clients even if the client approaches them first.
• Confidentiality obligations: prevents use or disclosure of confidential information (often included separately as well).

In many cases, non-solicitation and confidentiality obligations are easier to justify than a broad non-compete - but what’s “right” depends on how your business operates and what the employee actually does.

Are Restraint Clauses Enforceable In Australia?

In Australia, restraint clauses can be enforceable - but there’s an important catch.

As a general principle, a restraint of trade is presumed to be void unless you (as the employer) can show it’s reasonable and necessary to protect your legitimate business interests.

That means a restraint clause isn’t something you include “just in case” and expect it to automatically work. If it ever becomes a dispute, you need to be able to justify the restraint period, geographic area, and the scope of restricted activities.

It’s also worth noting that enforcement can vary between states and territories. For example, in NSW the Restraints of Trade Act 1976 (NSW) can affect how restraints are treated (including giving courts power to “read down” an unreasonable restraint in some circumstances). In other jurisdictions, courts generally rely on common law principles, and an unreasonable restraint may be more vulnerable to being struck out entirely.

What Counts As A “Legitimate Business Interest”?

Legitimate interests often include:

• Confidential information (for example: pricing, processes, trade secrets, product roadmaps, marketing strategy)
• Customer connections and goodwill (especially where the employee had strong personal influence over your clients)
• Workforce stability (for example: protecting against poaching key staff)

What usually doesn’t count is restraining someone simply because you don’t want competition, or because it’s inconvenient to replace them.

If you want to pressure-test the strength of your clauses, speaking with a lawyer about restraint of trade advice early can save a lot of time and cost later.

Why “Reasonableness” Matters

When assessing whether a restraint clause is reasonable, the key questions tend to be:

• Is the restraint period in the employment contract longer than necessary?
• Is the geographic area wider than the employee’s actual influence or your real trading area?
• Does the restriction go beyond what the employee actually did (for example, restraining them from an entire industry when they had a narrow role)?
• Are there narrower options available (for example, non-solicitation instead of a full non-compete)?

In other words: the restraint clause should be tailored, not generic.

How Do You Set A “Reasonable” Restraint Period In An Employment Contract?

The restraint period is often the first thing an employer focuses on - and it’s also one of the first things a court (or the other side’s lawyers) will challenge.

There’s no single “magic number” that works for every business. A reasonable restraint period employment clause depends heavily on:

• the seniority of the employee
• their access to confidential information
• their relationship with clients and suppliers
• the sales cycle in your industry
• how long it would realistically take you to protect your client relationships and replace the employee

Practical Ways To Think About Restraint Periods

Instead of asking, “How long can we restrain them for?”, it’s often more useful to ask:

• How long will the information stay sensitive? (e.g. pricing lists might become outdated faster than long-term strategy)
• How long will it take for client relationships to stabilise? (e.g. if your clients are annual renewals, you may argue a longer period than if it’s one-off transactions)
• How quickly can you transition accounts? (handover, introductions, new account manager)

For some businesses, 3 months is plenty. For others, 6-12 months might be justified for a key executive or senior salesperson. The key is that you should be able to explain why the period is needed for that role.

Use “Cascading” Restraint Periods (Where Appropriate)

A common drafting approach is to include cascading restraint periods and areas, so if a longer restraint is found unreasonable, a shorter option might still apply.

However, “cascading” drafting isn’t treated the same way in every jurisdiction, and it needs to be drafted very carefully to avoid uncertainty. In NSW, cascading options can be more likely to be read down in line with the Restraints of Trade Act 1976 (NSW), but in other states and territories the court may be less willing to effectively rewrite the clause if it considers the drafting unclear or the restraint excessive.

For example, your restraint clause might include alternatives like:

• 12 months, or if that is not enforceable then 9 months, or if that is not enforceable then 6 months
• Australia, or if that is not enforceable then NSW, or if that is not enforceable then within 10km of your office

This approach can make your restraint clause more resilient, but it still needs careful drafting so it reads clearly and functions as intended.

What Else Makes A Restraint Clause More Likely To Hold Up?

A restraint clause in an employment contract is rarely assessed in isolation. To build a stronger overall position, it helps if the contract and your workplace practices clearly show what you are protecting and why.

1. Define The Restricted Activities Clearly

Vague restrictions are risky. Instead of “must not compete”, consider defining what “compete” means in your business context:

• Is it limited to the same services you provide?
• Is it limited to particular client segments?
• Is it limited to roles that are materially similar to the employee’s duties?

The more precise you are, the easier it is to argue the restraint is reasonable.

2. Align The Restraint With The Employee’s Actual Role

Restraint clauses in employment contracts are most effective when they match reality. If an employee never dealt with clients, a broad client non-dealing restraint may be difficult to justify.

Similarly, if your business is local, trying to restrain someone across Australia may be hard to defend unless you genuinely operate nationally and the employee had a national footprint.

3. Pair The Restraint With Strong Confidentiality And IP Terms

Many disputes about “competition” are really disputes about confidential information and business systems.

Your employment contract should clearly cover confidentiality obligations, return of property, and (where relevant) ownership of IP created during employment. If you’re updating your templates, it’s often a good time to review your Employment Contract as a whole rather than treating the restraint clause as a standalone add-on.

4. Support The Contract With Policies And Practical Controls

Restraint clauses work best when they sit within a broader framework of sensible business protections, such as:

• clear confidentiality labelling and access controls (need-to-know access)
• offboarding checklists and system access termination
• workplace expectations around conflicts of interest and secondary employment
• written policies that reinforce confidentiality and acceptable use of business information

Depending on your team and the nature of your work, a tailored Workplace Policy can help make those expectations clear and consistent.

5. Consider Whether A Non-Compete Is Actually Necessary

Non-compete clauses often attract the most scrutiny.

In many small businesses, you can achieve strong protection without a full non-compete by using a combination of:

• confidentiality obligations
• non-solicitation of clients
• non-poaching of staff

If you do need a non-compete, it should be tightly limited, and you should be confident you can justify it based on the employee’s role and access.

If your business relies heavily on preventing direct competition, it may also be worth considering a tailored Non-Compete Agreement structure (for example, for senior employees), rather than relying on a generic clause.

What Happens If An Employee Leaves And You Want To Rely On The Restraint Clause?

When an employee resigns (or you terminate their employment), it’s a good idea to treat restraints as part of a structured offboarding process rather than a last-minute scramble.

Step 1: Confirm What The Contract Actually Says

Before you do anything else, check:

• the exact restraint period in the employment contract
• the restrained activities (non-compete, non-solicit, non-deal, non-poach)
• the geographic area
• how “clients” or “customers” are defined (e.g. clients in the last 6 or 12 months)

Also make sure you’re looking at the correct version of the contract, including any later variations.

Step 2: Remind The Employee Of Their Post-Employment Obligations

Many issues can be avoided by clearly (and calmly) reminding the employee in writing of their obligations, including confidentiality and restraint terms, and asking them to confirm they will comply.

This is especially helpful where the employee is leaving on good terms and may not fully appreciate how the clauses work.

Step 3: Protect Your Client Relationships Early

If the employee was client-facing, focus on commercial protection steps you can control:

• introduce the new account manager promptly
• reconfirm upcoming work and renewal dates
• ensure the employee returns company devices and data
• restrict access to CRM/customer lists once notice is given (where appropriate)

These steps don’t replace a restraint clause - but they can reduce risk and strengthen your position if a dispute escalates.

Step 4: If There’s A Breach, Move Quickly (But Strategically)

If you believe a restraint clause is being breached, timing matters. Evidence can disappear fast, and customer relationships can shift quickly.

That said, enforcement isn’t always a simple “send a letter and it stops”. Sometimes, the most practical approach is to:

• gather evidence and clarify what is actually happening
• attempt early resolution (for example, an undertaking to stop contacting clients)
• consider whether court action is proportionate to the risk

Your strategy will depend on the seriousness of the breach and the strength of the restraint clause.

A Note On Termination, Notice And “Garden Leave”

Some employers assume they can “extend” restraint periods by ending employment and paying out notice. It doesn’t always work like that.

Whether you can direct an employee not to attend work during the notice period (often called garden leave) depends on the contract terms and the circumstances.

It’s also important to ensure the exit process itself is legally sound, including notice requirements and final pay. If you’re reviewing your processes, it can help to also look at your approach to payment in lieu of notice.

How Do You Build A Stronger Restraint Strategy As A Small Business?

For most small businesses, the best restraint strategy is a layered one.

A restraint clause can be effective, but it’s strongest when it sits alongside:

• well-drafted employment contracts that reflect the role (not a generic template you found online)
• clear confidentiality controls (what information is sensitive, who can access it, and how it’s handled)
• consistent policies and onboarding so expectations are clear before problems arise
• role-specific restraints for senior staff rather than “one size fits all”
• a practical offboarding plan to protect relationships and reduce the temptation/opportunity for misconduct

If you’re employing staff for the first time or upgrading how you engage employees, it’s worth ensuring the rest of your contract framework is also up to date - including your Employment Contract terms for full-time and part-time employees (where relevant).

Key Takeaways

• A restraint clause is designed to protect your business after an employee leaves by restricting competition, solicitation, dealing, and/or poaching for a set period.
• A restraint period in an employment contract is the length of time the restraint applies after employment ends, and it must be reasonable in light of the employee’s role and your business needs.
• Restraint clauses in employment contracts can be enforceable in Australia, but generally only where they protect legitimate business interests (like confidential information, client relationships, and workforce stability) and are drafted appropriately for the relevant state or territory.
• To improve enforceability, keep restraints tailored: define restricted activities clearly, match the geographic area to where you actually operate, and avoid “one size fits all” periods.
• Consider using cascading options (multiple time periods/areas) with care, and rely on narrower protections like non-solicitation and confidentiality where possible.
• Restraints work best as part of a broader strategy, including strong contracts, clear policies, and a structured offboarding process.

If you’d like help putting the right restraint clause and restraint periods in place for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.