Restraint Of Trade Clause Example: Drafting Tips For Startups And SMEs

When you’re building a startup or scaling a small business, your value often lives in things you can’t physically touch: customer relationships, pricing strategy, product roadmap, code, supplier terms, and the “know-how” your team learns along the way.

That’s why many Australian businesses consider including a restraint of trade clause in their contracts. Done well, it can help protect your commercial position if a key person leaves (whether that’s an employee, contractor, co-founder or even a seller in a business sale).

Done poorly, it can also be unenforceable, too broad to rely on, or create friction in hiring and business relationships.

This guide walks you through a practical restraint of trade clause example, plus drafting tips that suit the reality of Australian startups and small businesses. We’ll focus on how to design restraints that are more likely to be enforceable, commercially sensible, and aligned with the role and risk.

What Is A Restraint Of Trade Clause (And Why Do Startups Use Them)?

A restraint of trade clause is a contractual term that restricts what someone can do after their relationship with your business ends.

In a small business context, restraints commonly try to limit a person from:

• competing with your business for a certain period
• approaching (or dealing with) your customers or suppliers
• poaching your staff
• using or disclosing confidential information

For startups, the usual goal is risk management. You’re not trying to “lock someone down” forever. You’re trying to protect a legitimate business interest, such as:

• confidential information (source code, processes, pricing, sales pipeline)
• customer connections built at your expense
• goodwill in your brand and reputation
• team stability (preventing a sudden team “walk-out” to a competitor)

Restraints are often paired with other legal tools like confidentiality obligations, IP assignment clauses, and clear terms around ownership and handover. Depending on your setup, you might also need founder documents like a Shareholders Agreement to keep the commercial fundamentals clear from day one.

When Are Restraint Of Trade Clauses Enforceable In Australia?

In Australia, restraint of trade clauses aren’t automatically enforceable just because they’re written into a contract.

As a general principle, restraints that restrict someone’s ability to work or trade are treated cautiously. For a restraint to be enforceable, it usually needs to be:

• protecting a legitimate business interest (not simply preventing competition)
• reasonable in duration, geographic area, and scope
• proportionate to the person’s role, seniority, and access to sensitive information

From a practical business perspective, this means:

• If you apply a “one size fits all” restraint across every role, you’re increasing the chance it won’t hold up when it matters.
• If the clause tries to stop someone working in their industry entirely, it’s more likely to be challenged.
• If the clause is specific (for example, it only restricts solicitation of customers the person dealt with), it’s often easier to justify.

It’s also worth noting: even if a restraint is arguably enforceable, enforcing it can be time-sensitive and evidence-heavy. Your contracts and your internal processes should support the story you want to tell (what information was confidential, what relationships were built, what role the person had, and what risk you’re actually trying to prevent).

Restraint Of Trade Clause Example (With Practical Notes)

Below is a practical restraint of trade clause example suitable for many startups and small businesses as a starting point. It uses a “cascading” structure (also called a ladder), which gives multiple options for time and area. The idea is that if a broader option is unreasonable, a narrower one may still survive.

Important: this is general information only and isn’t legal advice. Your clause should match your business model, the type of relationship (employee vs contractor vs seller), and your actual risk profile.

Example: Non-Compete, Non-Solicit And Non-Poach

How To Read This Example (What Matters Most)

• It defines “Key Client” tightly: this helps avoid overreach. You’re not trying to stop someone dealing with anyone you’ve ever sold to - just clients they actually dealt with.
• The non-compete is role-based: it focuses on similar duties, which can be easier to justify than a blanket “no work in the industry”.
• It includes a non-poach clause: staff stability is a real risk for small teams, and a targeted non-poach can be commercially useful.
• It uses cascading periods/areas: this can improve the chance that a court enforces a narrower version if the broader version is unreasonable.

In practice, many businesses also rely heavily on confidentiality and IP clauses. A restraint helps, but it’s not a substitute for clear confidentiality obligations and strong document hygiene (for example, controlling access to sensitive customer lists and internal systems).

How To Draft A Restraint That Actually Fits Your Business

When we help startups draft restraints, we’re usually trying to balance two things:

• Protecting what you’ve built (so you can invest in growth without fear)
• Keeping the clause realistic (so it’s more likely to be enforceable and less likely to scare off good hires)

1) Start With The Risk: What Are You Really Protecting?

Before you write a single word, ask:

• What information or relationships does this person have access to?
• Could they realistically take customers, suppliers, or staff if they left?
• Would a non-solicit alone solve the problem (instead of a non-compete)?

A common mistake is using a non-compete as a default. Often, a carefully drafted non-solicit (plus confidentiality and IP provisions) is enough.

2) Match The Restraint To The Role (Not Your Org Chart)

The more senior or influential the person, the easier it is to justify a stronger restraint. Consider tailoring restraints for:

• Sales and account management: strong focus on non-solicitation of customers
• Engineers/product roles: strong confidentiality and IP protections; careful with non-competes unless truly necessary
• Executives and founders: broader restraints may be more justifiable depending on exposure to strategy, pricing and investor information

For employees, this often sits inside an Employment Contract. For contractors, you’d typically include it in a contractor agreement (and you’ll usually want to ensure IP and confidentiality terms are also properly covered).

3) Keep Duration And Geography Defensible

There’s no magic “legal” timeframe that works in every case, but here are practical ways to think about it:

• Duration: tie it to how long your confidential information stays commercially sensitive, or how long it takes to transition a customer relationship.
• Geography: tie it to where you actually operate (or where the person actually influenced customers).

For many service businesses, 3–6 months is often the commercial “danger period” for customer movement right after a departure. For business sales, restraints can be longer because goodwill is a major part of what’s being bought.

4) Be Specific About What “Competing” Means

Vague restraints can cause two issues:

• They’re harder to enforce (because it’s unclear what the restriction covers).
• They can create arguments and uncertainty during offboarding.

Instead of “must not compete with the business”, consider:

• defining the “Restricted Business” by reference to your actual products/services
• tying non-compete to “similar duties” or “same target market”
• using a non-solicit and non-poach as your primary protection where possible

5) Don’t Forget The Supporting Documents And Processes

A restraint clause is only one piece of the puzzle. If your contracts don’t clearly deal with ownership, confidentiality, and termination mechanics, you can end up with a clause that looks strong on paper but is hard to rely on in real life.

Depending on your structure, you may also need foundational documents like a Company Constitution (particularly if you have shareholders, plan to raise capital, or want tailored governance rules).

Common Mistakes Small Businesses Make With Restraint Clauses

Restraint clauses often fail because they’re treated as “standard boilerplate” rather than risk controls that need tailoring.

Using A Copy-Paste Clause From The Internet

A generic restraint might:

• use US-style language that doesn’t fit Australian contracts
• refer to the wrong business model (for example, “within 50 miles”)
• be so broad it becomes unenforceable

Even if you find a decent example, it’s usually missing the context-specific definitions and limitations that make the restraint workable.

Trying To Restrain “Everyone” The Same Way

If your admin assistant and your head of sales have the same post-employment restraint, it raises the question: is this really necessary, or just a blanket restriction?

Tailoring isn’t just good legal practice - it’s good hiring practice. It signals that you’re thoughtful and fair.

Overrelying On A Non-Compete Instead Of Confidentiality

For many startups, your most valuable asset is confidential information.

That’s why restraints should sit alongside clear confidentiality terms, and you should treat confidentiality as a living process (access controls, offboarding checklists, return of property, removal of permissions).

Where you’re collecting personal information (for example, customer details, mailing lists, app user data), it also helps to have the basics right, including a Privacy Policy that matches what you actually do with that data.

Not Thinking About The Contract “Exit” Scenario

It’s easy to sign someone up when things are exciting and growing. But restraints matter most when someone leaves, especially if the departure is sudden or contentious.

Your contract should also clearly cover practical exit issues, such as:

• return of company property
• handover of work in progress
• ongoing confidentiality obligations
• any garden leave or notice mechanics (if relevant)

If you’re changing roles, pay structures, or responsibilities over time, make sure your contracts evolve too. “Set and forget” agreements often stop matching the reality of the relationship - and that’s when disputes happen.

Where Restraint Of Trade Clauses Show Up For Startups (Not Just Employment Contracts)

Many business owners think restraint clauses are only for employees. In reality, startups often use them across several key relationships.

Contractors And Freelancers

If a contractor is client-facing, has access to your systems, or effectively operates as part of your team, you may need a tailored restraint (often focused on non-solicitation and confidentiality).

Be careful: contractors are different to employees, and the drafting should reflect the nature of the engagement.

Co-Founders And Early Team Members

If you have co-founders, you’ll usually want the “big issues” handled upfront: ownership, decision-making, exit rights, and what happens if someone leaves early.

Restraints can be included here too, but they’re usually only one part of the commercial deal. This is where documents like a Shareholders Agreement or other founder arrangements become essential.

Business Sales (Vendors Selling Goodwill)

When you buy a business, you’re often paying for goodwill - the customer base, reputation, and ongoing revenue potential. In that context, it’s common to require the seller to agree not to compete for a period so the value you purchased doesn’t immediately walk out the door.

If you’re on the acquisition side (or planning a future exit), it’s worth understanding how sale-related restraints work and making sure the transaction documents line up with what you’re buying and selling.

What If You Just Want To Protect Confidential Information?

Sometimes, a confidentiality and IP-focused approach is cleaner than a broad restraint.

If you’re primarily protecting your know-how, you can often strengthen your position with:

• clear confidentiality obligations
• clear IP ownership clauses
• tight access controls internally
• well-drafted customer and supplier agreements

For example, if your business operates online and your legal risk is largely about customer terms and platform rules, having tailored Website Terms and Conditions can be just as important as post-exit restraints.

Key Takeaways

• A restraint of trade clause can help protect your startup’s confidential information, customer connections, goodwill and team stability, but it needs to be tailored to your actual risks.
• A practical restraint of trade clause example usually includes clear definitions, targeted non-solicit and non-poach obligations, and (only where justified) a role-based non-compete.
• In Australia, restraints are more likely to be enforceable when they protect a legitimate business interest and are reasonable in scope, duration and geography.
• Common drafting mistakes include copy-paste restraints, restraints that apply equally to every role, and clauses that are so broad they’re difficult to enforce.
• Restraints should sit alongside strong confidentiality, IP and exit provisions in your contracts, so your protection works in practice (not just on paper).

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