The prospect of a new job can be exciting, but what happens when a new potential employer asks about your former employer’s restraint of trade? For example, John works with Employer A, resigns, then has a job interview with Employer B. Employer B offers John employment, conditional upon John obtaining written consent from employer A that employment with Employer B will not breach any previous restraint of trade clause.
Our WAS team has increasingly observed this scenario. In response, we provide the following advice:
Commencement of employment
If you are a financial member of Professionals Australia and you are offered an employment contract, you may send your contract to be reviewed to email@example.com.
Generally speaking, the restraint of trade will be enforced in court if it is necessary to protect the legitimate business interest of your employer. Many employment contracts with post-employment restraints refer to a “Restraint Period” and “Restraint Area”.
Often, the post-employment restraint will have cascading Restraint Periods and Restraint Areas i.e.
- 1 year, or 6 months, or 3 months.
- Australia, or NSW, or Sydney CBD
Cascading restraints attempt to have some form of restraint applied by a court if the maximum period or area requested by the employer is deemed to be unreasonable. If a court finds that a restraint clause is unreasonable, they may sever or ‘strike out’ the unreasonable part, so that the remainder of the clause is reasonable and able to stand alone. Please note that the law is different in NSW, in that it allows for the court to ‘read down’ and adjust a restraint of trade to be reasonable.
After receiving our advice on a new contract, you may wish to negotiate for the amendment and/or removal of a post-employment restraint prior to commencing employment. For example, you may wish to demonstrate how the restraint of trade would prevent you from earning a living based upon your expertise and skill set. Please note that a successful negotiation may depend on your bargaining power and the specific circumstances of your potential employer.
Once you decide to leave employment, you should review your existing employment contract and familiarise yourself with any post-employment restraint which may apply to you. You may wish to seek further advice on the terms of this post-employment restraint, by contacting our WAS team.
If after receiving our advice, you are concerned that you may breach the restraint of trade clause, you may wish to discuss the possibility of requesting a waiver from your current employer. A waiver is written permission which would allow you to work with a certain employer post-employment.
Some strategies that other members have found to be useful is to illustrate that leaving your employer to go to say a client of the employer may have benefits to with regard to strengthening relationships. Again this is going to be specific to the situation as it evolves and we recommend seeking advice.
Finding new employment
If your new employer requests written consent from your former employer, to ensure that you are not breaching any existing restraint of trade clause, we advise the following:
- Look at the terms of any existing restraint of trade.
- If you are concerned that you are still within a Restraint Period/Restraint Area, contact your previous employer and request a waiver.
- If the waiver is refused, contact our WAS team for further advice. We understand that this situation may be stressful, however we strongly advise against forging permission, or making threats against your former employer if the waiver is refused.
- Please do not ignore any letter and/or undertaking received from a former employer which:
- asks you to provide details of your current employment; and
- threatens possible legal action for breach of restraint trade.
We recommend that you contact our WAS team for guidance as soon as practicable, and to also ask your former employer for a time extension to respond, so that you may receive independent legal advice.
- If the matter proceeds to court, your former employer will have the burden of demonstrating that the restraint clause is reasonable. If the restraint is enforced, the new potential employer cannot hire you until the restraint period has lapsed.
Ideally, we recommend you seek advice from Professionals Australia prior to entering into any post-employment restraint agreement, but we realise that debating these clauses may mean the employer withdraws the offer of employment.
Seeking a new job with a client, customer or competitor or your current employer is common, as the market place functions with competition as its main principle. If you are faced with this situation, we suggest you seek advice from Professionals Australia regarding your rights and obligations.
The information above is for information purposes only and should not be considered as legal advice applicable to your specific situation. For advice please contact the Workplace Advice and Support team by calling 1300 27 37 62 or emailing firstname.lastname@example.org.
Michelle Luarte is a National Industrial Officer and Lawyer within the Workplace Advice and Support team at Professionals Australia. This position has a primary focus on assisting members with individual employment law matters, including assistance with contract reviews.