Restraint of Trade Clause Example in Australia

Hiring and training great people, building your customer base, and developing unique know‑how takes time and money. It’s natural to want protection if an employee, contractor or business buyer could walk away and use those advantages against you.

That’s where a restraint of trade clause comes in. When drafted well, restraints help protect your legitimate business interests without overreaching. When drafted poorly, they’re ignored by courts and can even damage relationships.

In this guide, we’ll explain how restraints work in Australia, share plain‑English restraint of trade clause examples you can adapt, and show you where to include them across your contracts so your business is protected from day one.

What Is A Restraint Of Trade Clause?

A restraint of trade clause is a contractual promise that limits what a person or business can do after a relationship ends. For small businesses, restraints most often appear in:

• Employment contracts and senior executive agreements
• Contractor agreements and services agreements
• Business sale contracts (to protect the goodwill you’ve paid for)
• Franchise agreements (to protect the brand and territory)
• Founder and investor documents (for example, in a Shareholders Agreement)

Restraints typically restrict one or more of the following:

• Competition (working for or operating a competing business)
• Solicitation (poaching your clients, suppliers or staff)
• Use of confidential information (using or disclosing know‑how outside your business)

The goal isn’t to punish someone for moving on - it’s to reasonably protect your business’ legitimate interests, like your confidential information, customer connections and workforce stability.

Are Restraints Enforceable In Australia?

Yes - but only if they’re reasonable. Australian courts start from the position that restraints are void unless they go no further than necessary to protect a legitimate business interest. In practical terms, “reasonable” means the restraint is carefully tailored across three dimensions:

• Scope of activities (what exactly is prohibited, and is it tied to your actual business?)
• Geographic area (where does the restraint apply - suburb, city, state, country?)
• Duration (how long does it last - weeks, months, years?)

Courts also look at the context. For example, stronger restraints are more likely to be upheld on the sale of a business (because the buyer pays for goodwill). In employment, restraints must be tighter and genuinely linked to protecting confidential information, client relationships or a uniquely senior role.

In New South Wales, the Restraints of Trade Act 1976 (NSW) allows courts to “read down” an over‑broad restraint to make it reasonable (often with “cascading” options). In other states and territories, courts generally can’t rewrite an unreasonable clause - they can only strike it out.

Bottom line: your restraint needs to be carefully drafted to your business and the role. A one‑size‑fits‑all clause copied from the internet is risky. If you’d like tailored help, our team offers dedicated restraint of trade advice.

Restraint Of Trade Clause Examples (Ready‑To‑Adapt)

The following plain‑English examples show how you might frame common restraints for Australian small businesses. Treat them as starting points - not templates - and tailor the activity, area and duration to your industry, role seniority and location.

1) Employee Non‑Solicitation (Clients) Example

For 6 months after your employment ends, you must not, in , directly or indirectly solicit the custom of any client or active prospect of the Company with whom you had material dealings in the 12 months before your employment ended, for the purpose of providing goods or services that compete with the Company.

Why it’s reasonable: it focuses on clients the employee actually dealt with, in a defined area, for a limited time.

2) Employee Non‑Solicitation (Staff) Example

For 6 months after your employment ends, you must not, in , induce or attempt to induce any employee of the Company with whom you worked closely in the 12 months before your employment ended to cease employment with the Company.

Why it’s reasonable: it protects your workforce without trying to ban normal industry networking.

3) Employee Non‑Compete (Senior Role) Example

For 3 months after your employment ends, you must not, within , be engaged (as an employee, contractor or owner) in a business that substantially competes with the Company’s  business, where doing so would reasonably risk the use of the Company’s confidential information or client connections.

Why it’s reasonable: it’s short, tightly geographic, and tied to specific risks. Non‑competes must be drafted with care, especially for non‑executive roles.

4) Confidential Information Restraint Example

You must not at any time (including after your employment ends) use or disclose the Company’s confidential information except in the proper performance of your duties or with the Company’s prior written consent. “Confidential information” includes client lists, pricing, marketing plans, trade secrets, and non‑public operational processes.

Why it’s reasonable: confidentiality is often the most defensible restraint and can last indefinitely.

5) Contractor Restraint Example

During the term and for 3 months after this Agreement ends, the Contractor must not, within , solicit the Company’s clients to provide competing services or use the Company’s confidential information for any purpose other than performing the Services.

Why it’s reasonable: it focuses on client poaching and confidential information for a short, local period.

6) Business Sale Restraint Example

In consideration of the Buyer paying for the goodwill of the Business, the Seller agrees that for 2 years after Completion, the Seller will not, within , operate or be involved in a business that competes with the Business as conducted at Completion, and will not solicit the custom of clients of the Business as at Completion.

Why it’s reasonable: business sale restraints can be longer and broader because the buyer is paying for goodwill.

7) Franchise Restraint Example

For 12 months after this Agreement ends for any reason, the Franchisee must not, within the Franchise Territory or any adjoining postcode, carry on a business that is the same as or substantially similar to the Franchise Business.

Why it’s reasonable: it protects the franchise territory and brand without banning work Australia‑wide.

Use Cascading Options For Flexibility

To boost enforceability - especially in NSW - consider cascading durations and areas (for example, 12/6/3 months and Australia/State/10km). If a broader option is unreasonable, a court can step down to a narrower option.

Where Should You Put Restraints In Your Documents?

Restraints only help if they’re in the right contract, written clearly, and consistent with the rest of your terms. Common places to include them are:

• Employment Contract: include confidentiality, non‑solicit and (for appropriate senior roles) a carefully scoped non‑compete.
• Sub‑Contractor Agreement: add confidentiality and non‑solicit clauses that reflect the contractor’s access to your clients and information.
• Non‑Disclosure Agreement (NDA): use during early discussions or pitches to protect sensitive information before formal engagement.
• Business Sale Agreement: restrain the seller (and key individuals) from competing and poaching clients to preserve the goodwill you’re buying.
• Franchise Agreement: protect the system and territory, with post‑term restrictions on competing stores.
• Shareholders Agreement: restrain founders and key shareholders from competing while involved with the company and for a defined period afterwards.

For high‑risk or senior roles, a standalone Non‑Compete Agreement can supplement your employment terms, but it’s crucial that both documents align.

Step‑By‑Step: Draft A Reasonable Restraint

1) Identify Your Legitimate Interests

Start by mapping the real risks you need to cover. Typical interests include confidential information, client relationships, and team stability. Don’t try to ban competition “just in case” - that approach backfires.

2) Define The Prohibited Activities

Describe the restrained activity in practical, business‑specific terms. For example, “providing digital marketing services to SME clients” is clearer (and fairer) than “any competing business.”

3) Choose A Proportionate Area

Match the restraint area to your trading footprint. If you serve a local suburb, a 10km radius might be enough. If your business is state‑wide, a whole‑of‑state area could be reasonable. Avoid Australia‑wide unless truly justified.

4) Keep The Duration Tight

Pick the shortest period that still protects your interests (for example, the time it would take to solidify client relationships or refresh strategies). Common ranges are 3-6 months for employees, 12 months for senior executives, and 1-3 years for business sales.

5) Use Cascading Options

Include a cascade of alternative timeframes and areas (for example, 12/6/3 months and State/Region/10km). In NSW, this lets a court enforce the longest option it considers reasonable.

6) Align With Confidentiality And IP

Back your restraint with clear confidentiality and intellectual property terms. A strong confidentiality clause often does more heavy lifting than a broad non‑compete, and it’s more defensible.

7) Fit The Clause To The Person And Context

Senior roles with strategic visibility may justify wider restraints than junior roles. Contractors and franchisees are different again. Context matters - tailor accordingly.

8) Avoid Common Pitfalls

• Overly broad “catch‑all” bans on working in your industry
• Australia‑wide restraints for local businesses
• Long durations without justification
• Restraints that don’t match the actual role or relationship
• Inconsistent clauses between offer letters and final contracts

If you’re unsure where the line is for your industry and location, it’s worth getting advice before issuing contracts. A quick review upfront is cheaper than a dispute later.

Example: Turning A Broad Idea Into A Reasonable Clause

Too broad: “You must not work in digital marketing anywhere in Australia for 2 years.”

More reasonable: “For 3 months after your employment ends, within 10km of our Richmond office, you must not provide digital marketing services to any client with whom you had material dealings in the 12 months prior, where doing so would reasonably risk the use of our confidential information or client connections.”

Enforcement Tips

• Use clear definitions (for example, “Client” and “Confidential Information”).
• Record the employee’s access to key clients/knowledge (helps prove risk).
• Remind departing staff of their obligations and provide a copy of the clause.
• Act promptly if there’s a breach; delays can weaken your position.

Key Takeaways

• Restraint of trade clauses can protect your confidential information, client relationships and workforce - but only if they are reasonable in scope, area and duration.
• In employment, focus on confidentiality and non‑solicitation; keep any non‑compete short, local and tied to genuine risks. Business sale restraints can be broader and longer.
• Place restraints in the right documents - your Employment Contract, Sub‑Contractor Agreement, Business Sale Agreement, Franchise Agreement and (if relevant) your Shareholders Agreement.
• Use cascading options for time and area, and back restraints with strong confidentiality terms and a clear definition of restricted activities.
• Avoid one‑size‑fits‑all clauses. Tailor restraints to the role, your market footprint and the real risks to your business.
• It’s easier to prevent issues than to fight them later - get tailored restraint of trade advice before issuing contracts.

If you’d like a consultation on drafting or reviewing restraint of trade clauses for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.