Can You Ban Staff From Working For Competitors?

Mike runs a cleaning business in Melbourne. One of his account managers resigns, and a week later Mike hears she's joined a competing cleaning company that services the same suburbs. Two long-term clients then ask for their contract details and pricing history.

It's a frustrating moment. You don't want to stop people earning a living, but you also don't want your client relationships, pricing, systems and confidential information walking out the door.

If you're wondering whether you can stop employees working for competitors in Australia, the answer is: sometimes, but only if the restriction is reasonable and carefully drafted. A blanket ban is usually the weakest option.

Can You Stop An Employee Working For A Competitor?

It depends, but in most cases you can't simply ban an employee from working for a competitor because you'd prefer they didn't.

Australian law treats post-employment restraints as a restraint of trade. The starting point is that restraints are usually unenforceable unless you can show they're reasonably necessary to protect a legitimate business interest.

A legitimate business interest can include things like:

• Confidential information, such as pricing models, customer lists, supplier terms, tender strategies or product roadmaps.
• Client connections, especially where the employee had direct influence over those clients.
• Goodwill, meaning the value built up in your customer relationships and reputation.
• Trade secrets, such as formulas, processes, designs or technical know-how that aren't public.
• Stability of your workforce, in some cases, where a former employee tries to poach your staff.

What you generally can't protect is ordinary competition. For example, if someone learns general sales skills while working for you, you usually can't stop them using those skills elsewhere.

Courts look closely at whether the restraint goes further than needed. A 12-month ban on working for any competitor anywhere in Australia is much harder to justify than a 3-month ban on approaching clients the employee personally managed in the last year.

There are also proposed federal reforms to watch. The Australian Government has announced plans to restrict non-compete clauses for many employees, with changes expected to begin from 2027 if passed. The details may change, so if you're reviewing or updating employment contracts now, it's worth getting tailored advice rather than relying on an old restraint clause.

What Is A Non-Compete Agreement In Australia?

A non-compete agreement is a clause that tries to stop an employee from working for, or starting, a competing business after they leave you.

You'll usually find it in an employment contract, senior executive agreement, shareholders agreement or business sale agreement. In employment contracts, non-competes are looked at very carefully because they can affect someone's ability to work.

Non-competes are only one type of restraint. In many small business situations, they're not the most practical or enforceable option.

Common Types Of Restraints

• Non-compete clause: Stops the employee working for or being involved in a competing business for a set time and area.
• Non-solicitation clause: Stops the employee approaching your clients, customers, suppliers or staff.
• Non-dealing clause: Stops the employee dealing with certain clients, even if the client approaches them first.
• Confidentiality clause: Stops the employee using or disclosing your confidential information.
• IP clause: Confirms your business owns intellectual property created during employment.
• Garden leave clause: Lets you keep an employee away from clients and systems during their notice period while they remain employed and paid.

For many businesses, a strong confidentiality clause or non-disclosure agreement plus a targeted non-solicitation clause does more useful work than a broad non-compete.

Say you run a marketing agency in Sydney. If your strategist leaves, it may be hard to stop them joining another agency altogether. But you may have a stronger argument for stopping them from contacting the clients they serviced in the last 12 months, using your pitch decks, or taking your pricing data to win work.

When Is A Restraint Of Trade Clause Enforceable?

A restraint of trade clause is more likely to be enforceable when it's no wider than reasonably necessary to protect your business.

Courts usually look at three big questions:

• What interest are you protecting? For example, confidential information, client relationships or goodwill.
• How wide is the restraint? This includes the time period, geographic area and activities covered.
• Is the restraint reasonable overall? This includes the employee's role, seniority, access to information and impact on their ability to work.

The same clause can be reasonable for one employee and unreasonable for another. A 6-month restraint might make sense for a senior sales director who manages national client accounts. It may be excessive for a junior admin employee who has no real client influence or confidential strategic information.

Worked Example

Mia owns a Brisbane-based software consultancy. Her senior account manager, Leo, earns $140,000 and manages 18 active clients. Leo's contract says he can't work for any IT business in Australia for 12 months after leaving.

That clause is likely to be vulnerable because it's very broad. It covers every IT business, every role, the whole country and a full year.

A narrower clause would have a better chance. For example:

• Leo can't solicit or deal with clients he personally managed in the 12 months before leaving.
• The restraint runs for 3 months after his employment ends.
• The clause is limited to competing software consulting services.
• His confidentiality obligations continue with no fixed end date for true confidential information.

That still gives Mia meaningful protection. It focuses on the real risk: Leo taking client relationships and confidential pricing knowledge to a direct competitor.

In New South Wales, the Restraints of Trade Act 1976 can allow a court to read down a restraint so it applies more narrowly. Other states and territories don't work in exactly the same way, so you shouldn't assume a court will fix an overreaching clause for you.

Can You Stop An Employee Working For A Competitor While They're Still Employed?

Yes, you're usually in a stronger position while the person is still employed, especially if the competing work creates a conflict of interest.

Employees generally owe duties of fidelity and good faith to their employer while they're employed. They also need to follow lawful and reasonable directions. If your employment contract or workplace policy deals with conflicts of interest, outside work or confidentiality, that gives you a clearer basis to act.

You may be able to restrict current employees from:

• working for a direct competitor at the same time as working for you
• using your time, equipment or systems for another business
• approaching your clients for a competing business
• misusing confidential information
• setting up a competing business while still employed, especially if they're diverting opportunities away from you

The Fair Work Act 2009 still matters here. Your directions need to be lawful and reasonable, and you need to handle performance management or termination carefully. Employment contracts also can't undercut the National Employment Standards, modern awards or enterprise agreements.

A practical approach is to include an outside work and conflicts clause in your employment contracts and workplace policies, then back it up with a clear policy. For example, you might require employees to disclose paid outside work if it could affect their duties, create a conflict, or involve your clients, suppliers or competitors.

Be careful with very broad rules that ban all second jobs. For many roles, that may go further than your business needs. Focus on conflicts, fatigue and confidential information instead.

How Should You Draft A Post-Employment Restraint Clause?

You should draft a post-employment restraint as narrowly as you can while still protecting the real risk to your business.

A common mistake is to start with the harshest possible wording and hope it holds up. In practice, that can make the clause easier to attack. The better approach is to identify the specific risk and build the restraint around it.

A Practical Clause Outline

This isn't a finished legal document, but it shows the sections your lawyer would usually tailor for your business:

1. Protected interests: State what you're protecting, such as confidential information, client relationships, goodwill or staff stability.
2. Restricted activities: Spell out the conduct that's restricted, such as soliciting clients, dealing with clients, poaching staff or working in a competing role.
3. Relevant clients or contacts: Limit the clause to clients, suppliers or prospects the employee dealt with or learned confidential information about.
4. Time periods: Use reasonable periods, often with cascading options such as 3 months, 6 months and 12 months, depending on the role.
5. Geographic scope: Limit the area to where your business actually operates or where the employee had influence.
6. Confidential information: Define what is confidential and require return or deletion of business materials when employment ends.
7. Exceptions: Make clear the employee can use general skills and knowledge, and can work in roles that don't create a real competitive risk.
8. Remedies and process: Set out what happens if there's a breach, such as written notice and return of information.

Cascading clauses can help because they give a court several narrower options to consider. For example, the clause might say the restraint applies for 12 months, 6 months or 3 months, and within Australia, Queensland or Brisbane. These need to be drafted carefully so they don't become confusing or unfair.

Templates often miss the details that make a restraint workable, such as the employee's role, client cycle, sales process and actual operating area. This is one area where tailoring can make a real difference.

What Should You Do If An Employee Leaves For A Competitor?

You should first check the contract and secure your business information before contacting the former employee or competitor.

It can be tempting to send a strong email straight away. But if you overstate your rights, you can make the issue harder to resolve. A calm, evidence-based approach usually works better.

Steps To Take First

1. Review the employment contract: Check the restraint, confidentiality, IP, notice and return of property clauses.
2. Check the employee's role: Note what clients, pricing, systems, tenders and confidential information they had access to.
3. Preserve records: Keep emails, CRM logs, device records, file download logs and client communications.
4. Remove access: Turn off access to email, shared drives, software, client portals and messaging tools.
5. Ask for business property back: This can include laptops, phones, documents, keys, access cards and client files.
6. Contact affected clients carefully: Reassure them about continuity without making claims you can't support.
7. Get advice before sending demands: A lawyer can help you work out whether the restraint is likely to be enforceable and what to say.

If there's evidence of confidential information being taken, act quickly. Delay can weaken your position and give the information more time to spread.

At the same time, don't forget your final pay obligations. A restraint issue doesn't usually let you withhold wages, accrued annual leave or other employee entitlements. If you need to recover property or deal with a breach, handle that separately and get advice before making deductions.

Key Takeaways

• You usually can't stop an employee working for a competitor just because they're now competing with you.
• A post-employment restraint has a better chance if it protects a legitimate business interest, such as confidential information or client relationships.
• Non-solicitation, non-dealing, confidentiality and garden leave clauses are often more practical than a broad non-compete.
• The narrower the restraint is in time, area and activities, the more defensible it's likely to be.
• Current employees can usually be restricted from conflicting work, but your directions still need to be lawful and reasonable.
• If someone leaves for a competitor, secure your records, remove access and get advice before sending demands.

If you'd like help with your employment contracts, post-employment restraints, confidentiality clauses or what to do when a staff member joins a competitor, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.