What Is A Cascading Clause? (2025 Updated)

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As a business owner in 2025, one of your top priorities remains protecting your confidential information and client relationships from competitors. Whether it’s employees, business partners, or directors who have accessed sensitive data, you need to ensure that this information remains secure even if they leave or if you decide to sell your business.

You’d want to prevent them from sharing this information with competitors or using it to gain an unfair advantage.

A Non-Disclosure Agreement (NDA) is an excellent starting point. It helps ensure that those involved with your business don’t leak your trade secrets. In 2025, many businesses complement NDAs with a Restraint of Trade clause in their contracts. Increasingly, these restrictions are formatted as Cascading Clauses to offer clear, flexible options in protecting your interests.

As the name suggests, you “cascade” down a list of restraint options until you arrive at the one that best suits your needs.

Restraint Of Trade Clause vs Cascading Clause

Let’s touch on Restraint of Trade clauses. In 2025, these clauses continue to be a critical mechanism for protecting your business’s confidential information and are frequently structured as Cascading Clauses to provide alternative, enforceable options.

They are commonly found in Business Sale Agreements and Franchise Agreements. Many companies also incorporate these provisions in their Employment Contracts, Contractor Agreements or Non-Compete Agreements to stop former employees or partners from joining competitors or starting similar ventures, thereby reducing the risk of trade secret leakage.

Such restrictions typically remain in place for a specified period, preventing ex-employees, partners, or directors from immediately joining or launching a competing business.

Generally, a Restraint of Trade clause will detail:

Geographical restrictions
Time restrictions
Activity restrictions

Example

John is selling his Thai food restaurant business to Harry. The restaurant, known as “Thai Tanic”, is well-loved in the local area, but John prefers to exclude the name from the sale. Harry, recognising the brand’s value, is concerned that John might reserve the name to launch a competing restaurant nearby, thereby diverting loyal customers.

To mitigate this risk, Harry includes a Restraint of Trade clause in the contract, stipulating that John cannot open a new restaurant under the “Thai Tanic” name within a specific period. For example, the clause might state that John is barred from using the name for 3 years. However, using a Cascading Clause format allows for the adjustment of such terms if deemed excessive. For additional insights on restraint clauses, check out our guide to types of restraint clauses.

We’ve written more about Restraint of Trade clauses here.

What Is A Cascading Clause?

A Cascading Clause operates much like a standard Restraint of Trade clause, but it introduces several fallback options if one part of the clause is found to be unreasonable.

If a dispute arises and the Court deems a particular term of a Restraint of Trade clause excessive or unenforceable, that portion can be struck out. With a Cascading Clause, the next most appropriate option becomes enforceable, ensuring ongoing protection for your business without the need to renegotiate the entire agreement.

This mechanism prevents an entire clause from becoming void—thereby avoiding situations where former employees or partners might be free to join competitors without restrictions.

For example, in our scenario above, if the Court finds that preventing John from using the “Thai Tanic” name for 3 years across Australia is unreasonable, it might adjust the term to 1 year and limit the restriction to the suburb where the original restaurant is located. This flexibility is one of the key advantages of adopting a Cascading Clause.

To better understand how this works, let’s examine the structure of a Cascading Clause:

Period of the term:

3 years
1 year
6 months

Geographical location:

Australia
Victoria
South Yarra, Melbourne

The struck out version of the clause should appear as follows:

Period of the term:

~~3 years~~
1 year
6 months

Geographical location:

~~Australia~~
~~Victoria~~
South Yarra, Melbourne

Put simply, a Cascading Clause allows the Court to remove any terms it finds unreasonable while retaining the enforceable elements. This means you won’t have to re-negotiate the entire contract, ensuring continued protection for your business.

How Do I Know What Is ‘Reasonable’?

While the Court ultimately decides what is reasonable, understanding the typical criteria can help you draft better clauses. In 2025, key factors include the scope of the restriction, the duration, and the geographical area covered.

For instance, while an insurance company might justify a broad Restraint of Trade clause to prevent employees from joining competitors, imposing the same restriction on a former staff member of a fast food chain would likely be deemed excessive.

In the landmark case Hanna v OAMPS Insurance Brokers Ltd [2010], the operation of cascading clauses was scrutinised. Although the decision was made over a decade ago, its principles remain influential in 2025. In that case, the initial restraint ranged from 15 months across Australia to 12 months in metropolitan Sydney, with the Court eventually upholding the 12-month term as reasonable.

The Court will ask, “what is reasonably necessary to protect your business’s legitimate interests?” If the connection between the parties is clear and concrete, as when key trade secrets are involved, the clause is more likely to be deemed reasonable and enforceable.

Can A Cascading Clause Be Void For Uncertainty?

Under contract law, a clause may be rendered void if it is considered uncertain or ambiguous. Mr Hanna argued that the multiple provisions in his contract rendered the clause unclear; however, the Court determined that each term was distinct and understandable.

This case highlights the importance of a clearly formatted Cascading Clause. When every option is explicitly laid out, both parties can be confident in their rights, minimising the risk of the clause being void for uncertainty.

Key Takeaways

Cascading Clauses offer an effective method to adjust non-compete agreements without invalidating the entire provision. In 2025, courts can strike out unreasonable terms while enforcing the reasonable elements, thus saving businesses considerable time and potential dispute costs.

It is crucial that the format and terms of your clauses are completely clear. For additional guidance on drafting precise contractual terms, you might want to review our contract review service or learn more about non-compete agreements.

Ensure you consult legal experts before finalising these clauses to avoid potential disputes. Our article on how small businesses manage legal risks provides further insights into best practices in this area.

Moreover, keeping abreast of legislative updates is essential. With continual changes in employment and contract law across Australia, regularly reviewing your restraint provisions in consultation with a dedicated small business lawyer can ensure your agreements remain compliant and effective in 2025.

Sprintlaw has a team of experienced lawyers who can help you sort out all the necessary paperwork. Feel free to reach out to us at team@sprintlaw.com.au or contact us on 1800 730 617 for an obligation-free chat.

Rowan Gardoce

Rowan is the Marketing Coordinator at Sprintlaw. She is studying law and psychology with a background in insurtech and brand experience, and now helps Sprintlaw help small businesses

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