Non-compete clauses are commonly included in employment and contractor agreements in Australia to safeguard business interests. However, their enforceability under Australian law is nuanced and depends on the specifics of each case.
General Enforceability
Under common law, non-compete clauses are generally presumed void unless proven reasonable. This presumption aims to prevent undue restraint of trade. Outside New South Wales, the courts apply this principle strictly, requiring employers to justify the reasonableness of the restraint. Non-compete clauses that protect legitimate business interests, such as confidential information or client relationships, have a greater chance of being upheld. Accordingly, at least one in five Australian workers are subject to non-compete clauses, and one-half of the workforce are bound by some type of post-employment restraint, whether it is a non-compete or clauses that prevent the disclosure of confidential information, solicitation of clients and poaching of co-workers.
Factors Determining Reasonableness
Courts assess the enforceability of non-compete clauses by evaluating:
- Duration and clauses extending beyond 12 months are often scrutinised and require strong justification.
- Geographical scope clauses must be proportionate to the area where the business operates.
- Business interest and protection must align with genuine business needs, such as safeguarding trade secrets or preventing unfair competition.
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Applicability to Contractors
Non-compete clauses are not limited to employees; they can also apply to contractors. Contractors should carefully review these clauses to ensure they are reasonable and aligned with the nature of the business relationship. Courts apply the same criteria of reasonableness and legitimate interest to determine enforceability.
Conclusion
Non-compete clauses can provide valuable protection for businesses but must be crafted with care to withstand legal scrutiny. Employers and contractors should ensure these clauses are tailored to the specific context and seek legal advice to minimise the risk of unenforceability.
Have questions about the enforceability of non-compete clauses for your business or startup? Contact us today at hello@clicklegal.com.au to book your free 30-minute consultation.
