When you’re offered a new job, it’s exciting to get the contract and think about starting your role. But before you sign, it’s crucial to take a closer look at the fine print—particularly if there’s a restraint of trade clause. In New Zealand, restraint of trade clauses can have long-lasting effects on your career, so understanding what you’re signing up for is key.
What is a 'restraint of trade' clause?
A restraint of trade clause is a contractual term designed to restrict what you can do after you leave your job. Typically, it prevents you from:
Working for a competitor for a certain period of time.
Setting up a competing business in a specific area.
Poaching clients or staff from your former employer.
In some cases, employers might offer a financial payment to offset the impact of the restriction known as compensation for restraint.
While these clauses are relatively common, they’re not automatically enforceable in New Zealand. For a restraint of trade to be enforceable, it must meet the test of reasonableness. This means:
The duration, scope, and geographical area must not be excessive. For example, a 12-month ban on working for a competitor might be upheld in some cases, but a five-year restriction would almost certainly be unreasonable.
It must protect a legitimate business interest. This might include safeguarding confidential information, client relationships, or trade secrets. If your job doesn’t involve sensitive information or client connections, it’s less likely a restraint will be enforceable.
In many cases, employees feel they have to sign a contract as-is. However, you do have the right to negotiate the terms before you agree. For example:
Ask for the restraint to be narrowed (e.g. reduce the duration or geographical scope).
Request compensation for agreeing to the restraint.
Employers often expect some negotiation, so don’t be afraid to push back on terms that could harm your future.
What happens when I leave my job?
Restraints of trade can limit your ability to work freely after leaving a job. For instance if you’re restricted from working for a competitor for 6-12 months, this could make it harder to secure a job in your industry and geographical restrictions (e.g. within 10 km of our premises) might force you to relocate to find work. These restrictions can have serious financial and career implications, so don’t take them lightly.
If you have signed a contract with a restraint of trade clause, and choose to ignore it when you leave your role, your former employer could take legal action. This might involve:
Seeking an injunction to stop you from working for a competitor.
Claiming damages for any financial losses they can prove.
Saying that, even if you have signed a restraint of trade clause, your employer won’t automatically enforce it and a court won’t necessarily uphold it. However, relying on this uncertainty can be risky. It’s better to address any concerns before signing the agreement than to deal with the fallout later.
Before signing, take the time to understand what’s being asked of you, consider the potential consequences, and if you are unsure about a restraint of trade clause in your contract, it’s a good idea to get advice from an expert. mathewswalker.co.nz | 0800 612 355
Disclaimer: The information provided in this blog is for general informational purposes only and should not be considered legal advice. While we strive to keep the information accurate and up to date, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. For specific legal advice tailored to your situation, please contact a qualified legal professional.
Comentarios