Minna is the Head of People & Culture at Sprintlaw. After completing a law degree and working in a top-tier firm, Minna moved to NewLaw and now manages the people operations across Sprintlaw.
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Restraint clauses are one of those contract terms that can feel a bit daunting at first glance. If you’re hiring, selling a business or partnering with someone, you’ll often want to protect your clients, employees and commercially sensitive information. That’s where restraints come in - they can stop someone from competing unfairly once they leave or after a deal completes.
At the same time, restraints in Australia need to be drafted carefully to be enforceable. Courts won’t uphold a clause that goes further than necessary. So, how do they work, and what kinds of restraint clauses can you actually use?
In this guide, we’ll break down the main types of restraint clauses you’ll see in Australian contracts, when they’re enforceable, and practical drafting tips (for both employers and workers). We’ll also cover what to do if a dispute arises so you can manage risk with confidence.
What Is A Restraint Clause In Australia?
A restraint clause (sometimes called a restraint of trade clause) is a contractual term that limits a person’s activities during or after a business relationship. You’ll commonly see restraints in employment agreements, contractor agreements, business sale contracts and franchise deals. In Australia, restraints are only enforceable if they go no further than reasonably necessary to protect a legitimate business interest - for example, goodwill you’ve paid for in a sale, confidential information, client relationships or a stable workforce. Courts look at factors like the duration of the restraint, the geographic area, the activities being restricted and the person’s seniority. If it’s too broad, it may be struck out or read down.Common Types Of Restraint Clauses
There isn’t just one type of restraint - different clauses protect different interests. Here are the most common categories you’ll come across in Australia.1) Non-Compete (No Competition)
A non-compete clause restricts a person from engaging in a competing business or role for a period of time within a specified area. In employment, these are harder to enforce and generally reserved for senior or specialist roles where there’s real risk to confidential information or key client relationships. Non-competes are more likely to hold up following a business sale, because the buyer pays for the goodwill and needs time to bed down relationships without immediate competition from the seller.2) Non-Solicitation Of Clients Or Suppliers
This clause prevents someone from approaching, enticing or soliciting your customers or suppliers to take their business elsewhere. It’s commonly used in employment and contractor agreements and is generally more enforceable than a broad non-compete because it targets a specific risk - loss of clients. Sometimes you’ll see a related “non-dealing” clause, which stops a former employee or seller from doing business with your clients at all (even if the client approaches them). A non-dealing restraint is stricter than non-solicitation and must be carefully scoped.3) Non-Poaching Of Employees
A non-poach clause restrains former employees, founders or sellers from inducing your staff to resign and join them. Courts typically accept this as a legitimate interest - maintaining a stable workforce - especially for senior or specialist teams.4) Confidentiality (Non-Disclosure)
Confidentiality clauses prohibit the use or disclosure of your confidential information and trade secrets. While not always labelled a “restraint”, confidentiality obligations operate as an ongoing restraint on how information can be used after the relationship ends. These often work alongside a dedicated Non-Disclosure Agreement.5) Exclusivity / No-Other-Business
Exclusivity clauses require a person to devote time to your business only, or stop them from holding other roles that create a conflict. During employment, this can be paired with “no conflict” and “no moonlighting” provisions. Outside employment, exclusive supply or distribution terms are common in commercial contracts.6) Territory And Time Restraints
Many restraints are defined by a geographic area (for example, within 10 km of a site, statewide or Australia-wide) and a period (for example, 3, 6, 12 or 24 months). The narrower and more closely connected to your market and risk, the more likely a court will see it as reasonable.7) Garden Leave (Related Concept)
Garden leave isn’t a post-employment restraint clause, but it serves a similar risk-management purpose. It allows you to keep an employee away from the business (on pay) during their notice period while you transition clients and protect confidential information. You can read more about Garden Leave in Australia and how it works alongside restraints.When Are Restraint Clauses Enforceable?
Australian courts will enforce a restraint only to the extent it’s reasonably necessary to protect a legitimate interest. This “reasonableness” test is at the heart of restraint law. Here are the key factors that usually decide the outcome.Legitimate Interests You Can Protect
- Goodwill and customer connections (especially where goodwill was purchased in a sale)
- Confidential information and trade secrets
- Stability of your workforce (preventing poaching)
- Brand reputation and key commercial relationships (for example, core suppliers)
Scope, Time And Area Must Be Proportionate
The restraint’s scope (activities restricted), duration and geography must align with the risk. A narrowly defined client non-solicit for 6-12 months in the employee’s sales patch is more likely to be enforceable than a company-wide, industry-wide non-compete for two years across Australia.Role And Seniority Matter
Courts are more open to stronger restraints for senior executives and sellers of a business compared to junior employees. The greater the access to strategy, key clients or trade secrets, the more you can justify a stronger restriction.Cascading Clauses (Step-Down Restraints)
Many contracts use a “cascading” restraint - a list of alternative time periods, areas and scopes drafted in the alternative. If a court finds the longest/widest option unreasonable, it can still enforce a shorter/narrower version. This increases the chance that at least part of the restraint holds up.New South Wales Has A Special Statute
In NSW, the Restraints of Trade Act 1976 gives courts power to read down an unreasonable restraint to make it reasonable. In other states and territories, the position is governed by common law and severance principles.Consideration And Contract Formation
There must be valid consideration for the restraint (for example, employment itself, a pay rise or the sale price in a business sale). If you’re introducing a restraint later (say, updating a contract mid-employment), it’s safer to pair it with a new benefit such as a bonus or promotion.Where Will You See Restraints (And What Should They Look Like)?
Restraints appear in a range of agreements. The drafting should be tailored to the commercial context and the interest you’re protecting.Employment Contracts
An Employment Contract often includes confidentiality, non-solicit, non-dealing and sometimes non-compete provisions. For most roles, a careful non-solicit plus strong confidentiality is more defensible than a broad non-compete. For senior staff, a limited non-compete may be justifiable.Contractor And Consulting Agreements
Where contractors work closely with your clients or systems, you’ll usually include confidentiality, non-solicitation and non-poaching restraints. Ensure the restrictions reflect the contractor’s scope and access level.Shareholders And Founders Agreements
A Shareholders Agreement often includes non-compete, non-solicitation and confidentiality restraints for founders and key employees who are also shareholders. These aim to protect the company’s value and investor expectations if someone exits.Business Sale Agreements
In a Business Sale Agreement, restraints are crucial to preserve the goodwill the buyer is paying for. Expect to see bespoke non-compete, non-dealing and non-solicit clauses tied to the industry, geography and client base of the sold business. Courts are more willing to enforce stronger restraints in this context.Franchise Agreements
A Franchise Agreement typically contains in-term exclusivity and post-term restraints to protect the system’s brand, processes and territory. These often sit alongside detailed confidentiality and IP provisions.Confidentiality Agreements
A standalone Non-Disclosure Agreement underpins many relationships and is sometimes the only restraint you need pre-deal or during exploratory discussions. It complements, but doesn’t replace, well-crafted restraints in the main contract.Drafting Tips For Employers (And What Employees Should Watch For)
Getting restraints right is a balancing act. Here are practical tips we share with clients on both sides of the table.Set A Clear Objective
Identify the precise interest you’re protecting: customer connections, confidential information, workforce, or purchased goodwill. Draft the restraint to target that interest rather than using blanket wording.Narrow The Scope
- Define the restricted “business” or “activities” precisely (for example, “digital marketing services for hospitality venues within Victoria”).
- Use realistic time periods (for example, 6-12 months for client non-solicit; longer if tied to a business sale).
- Limit the geography to where you actually operate and where the person had influence.
Use Cascading Options Thoughtfully
Include a sensible range of time and area options so a court can enforce a narrower restraint if the widest option fails. Avoid unrealistic top-end options that undermine credibility.Pair Restraints With Strong Confidentiality
Don’t rely on restraints alone. Robust confidentiality obligations and tailored access controls often do the heavy lifting. Consider a standalone Non-Disclosure Agreement when sharing sensitive information outside an employment or sale context.Consider Alternatives For Handovers
For senior roles, garden leave can help you transition accounts and protect information during notice periods. See our article on Garden Leave in Australia for how this works in practice.Document The Context
In business sales, record the price components and the goodwill being acquired. This context supports stronger restraints in the Business Sale Agreement.Employees: Know What You’re Agreeing To
If you’re signing an Employment Contract with restraints, look for clear definitions, reasonable timeframes and fair geography. Clauses should reflect your role and access. If you’re moving jobs, consider how a non-solicit might affect your ability to contact clients you personally brought to the business.Use Fit-For-Purpose Templates
For employers, starting from a tailored Non-Compete Agreement or a well-drafted employment template helps keep restraints precise and defensible rather than overreaching.Enforcing Or Challenging A Restraint: What Happens In A Dispute?
Disputes often arise when someone resigns to join a competitor or a seller starts a new venture too soon. Here’s the usual pathway.1) Early Assessment And Negotiation
Start by assessing the clause’s scope against your legitimate interests, the person’s role and the facts. Many matters resolve with a negotiated undertaking - for example, the person agrees not to contact named clients for a set period. Clear, commercial dialogue can save both sides time and cost.2) Injunctions And Court Action
If urgent protection is needed (for example, imminent client poaching), businesses sometimes seek an injunction to restrain conduct pending a final hearing. The court will consider whether there’s a serious question to be tried, the balance of convenience and whether damages would be an adequate remedy.3) Evidence Matters
Keep records of client lists, introductions, handovers, confidentiality training and access controls. This evidence helps demonstrate the legitimate interest and the reasonableness of the restraint in context.4) Read-Down And Severance
Even if part of a clause is too broad, a court may enforce a narrower version (especially in NSW under the Restraints of Trade Act 1976). This is where cascading restraints and careful drafting can make a real difference.5) Get Specialist Input
Because enforceability turns on fine details, it’s wise to seek Restraint of Trade Advice early - whether you’re looking to enforce a clause or you’re worried a restriction goes too far.Examples: How Different Contexts Shape The Restraint
To bring it to life, here are a few scenarios illustrating how restraint types and strength shift by context.Senior Account Director (Employment)
A 12-month client non-solicit limited to clients the person had material dealings with in the last 12 months, plus a 6-month non-dealing for those same clients. Narrow geography tied to the state they serviced. Confidentiality obligations continue indefinitely.Software Contractor Embedded With A Key Customer
A 9-12 month non-solicit of the end-customer (and named prospects), a 12-month employee non-poach and robust confidentiality. No non-compete, because a targeted client restraint and confidentiality are sufficient to manage risk.Sale Of A Specialist Medical Practice
A 3-year non-compete within a 10 km radius of the practice, a 3-year non-dealing and non-solicit of patients, and employee non-poach. Stronger restraints are justified due to purchased goodwill; periods and area reflect the local patient catchment.Multi-Site Franchisee Exit
Post-term non-compete and non-solicit aligned to the franchised system, territories and brand. Continual confidentiality and IP protection sitting alongside the Franchise Agreement and operations manual.Key Takeaways
- Restraint clauses in Australia are enforceable only if they’re reasonably necessary to protect a legitimate business interest like goodwill, confidential information, client connections or workforce stability.
- The main types are non-compete, non-solicitation (clients), non-dealing, non-poaching (employees), confidentiality and exclusivity. Each targets a different risk.
- Scope, duration and geography must be carefully calibrated to the role and market; cascading (step-down) drafting increases the chance a court will enforce at least a narrow version.
- Context matters: stronger restraints are more defensible in business sale and senior executive scenarios than for junior employees.
- Pair restraints with strong confidentiality, sensible access controls and, where appropriate, garden leave to manage risk during transitions.
- If a dispute arises, early assessment and commercial undertakings can resolve most matters; seek specialist guidance to enforce or challenge a restraint confidently.
Minna BoyleHead of People & Culture
