In NSW the law is such that a business owner is entitled to take reasonable steps to protect his or her legitimate protectable interests… including its goodwill.
However, the business owner’s interests need to be weighed up against society’s expectation that people are entitled to “earn a quid” and our businesses shouldn’t be allowed to engage in anti-competitive behaviour.
What are legitimate protectable interests?
They are the nature of proprietary subject matter, such as:
What will make the protection reasonable?
Typically the protection will be in the form of some kind of restraint, known as a restraint of trade. For such restraint to be effective yet “reasonable” it must be such that:
while it affords adequate protection to the business in whose favour it is imposed,
it is not injurious to the public.
The key to an effective and legally sound restraint of trade clause is to ensure that it does no more than is reasonable to protect a legitimate protectable interest.
This requires you to understand what activities in your business undertaken by your employees expose those employees to your confidential information (including trade secrets) or provide them with the opportunity to develop influential relationships with your customers and/or employees.
Our recommendation is that you then tailor your restraints to those employees and activities only.
For example, if your employee is employed to manage a client’s work, then tailor the restraint to attach to those clients with whom he or she has such a relationship. Similarly, if your employee manages a team of employees, then tailor the restraint to attach to those employees.
The effect of such restraints from a legal perspective is that, the employee is able to work next door, therefore it is not anti-competitive and he or she can earn a quid, but he or she cannot undertake work for those clients, or with those employees, to whom the restraint attaches.
The term of a restraint must be reasonable also. In that regard, where as it is reasonable for confidential information such as client list and trade secrets to have to be kept confidential indefinitely (or until confidentiality is lost) restrictions on doing work for clients or engaging employees will be limited to a time frame sufficient for the business to have a reasonable opportunity to regain the goodwill of the client or employee as the case may be…sometimes that may be as little as two months or as great as two years…but mostly somewhere in between.