Restraint of trade – Can my old employer stop me working elsewhere?
Anti-competitive clauses – restraints of trade or non-solicitation clauses as they are commonly known – are often included in employment agreements. However can a previous employer really restrict you from working elsewhere once the employment relationship comes to an end?
Fundamentally, the Employment Court’s answer set out within Air New Zealand Ltd v Kerr is ‘only if it is reasonable’.
A ‘non-solicitation’ clause and a ‘restraint of trade’ clause are distinct – the former usually prevents you from soliciting away colleagues, customers, or suppliers from your employer when you leave, while the latter purports to prevent you from working for a competitor or even a business in in the same industry (including setting up shop on your own). A claim for an injunction or damages may be brought against an employee potentially in breach, and the new employer may also be joined in proceedings for aiding and abetting a breach of an employment agreement.
The Court considered this in Kerr and affirmed all restraint of trade clauses no matter the terms are unlawful from the outset, until proven reasonable. In order to be reasonable there must be:
- a legitimate proprietary interest to protect;
- a reasonable temporal; and
- a reasonable geographic restriction.
The Court determined there was a legitimate proprietary interest to protect – confidential information, and affirmed a 6 month temporal restraint was reasonable (however, they set out that the correct approach was to take into account any period of garden leave taken). The Court did not need to decide whether the geographic restraint, Australia and New Zealand, was reasonable, however indicated if it had considered this issue it likely would have reduced the scope to New Zealand only.
Ultimately, the restraint was proved reasonable and was upheld, however the restraint period had already lapsed during Mr Kerr’s period of garden leave.
The case demonstrates the legal complexities associated with anti-competitive clauses, and the limits of an employer’s ability to restrict future employment irrespective of whatever the parties purport to agree.