Summary
Information about restraints of trade in employment agreements.
A restraint of trade cannot be used to prevent an employee from earning income after they leave, but it is both reasonable and realistic for an employer to seek to protect their interests in today's economic climate.


Legal advice should be sought on the inclusion of, and action taken under restraint of trade clauses. In considering using these provisions it is important that the restraint applied is deemed appropriate for the nature of the relationship between the employer, employee and the employer's clients.

Restraint provisions restrict individuals and organizations from soliciting (a) employees, (b) customers or (c) business opportunities from another company or organization for a period of time.

NBR has the following advice regarding restraints:

- An employer has to show they have a legitimate proprietary interest that the law recognises as being deserving of protection and the protection must be no more than is reasonably necessary.
- One type of restraint is unlikely to be appropriate for all employees – what will be reasonable will depend on what the particular employee does. For some, any form of restraint may be inappropriate.
- Longer restraints are less likely to be enforceable than shorter restraints. For most employees, the maximum restraint of trade period will be about six months, but for many the appropriate period may be anywhere between one and three months. On the other hand, for some very senior and influential employees a period of up to 12 months or more may be able to be justified. But even here, this will depend on all of the circumstances.
- Where a geographical restriction is appropriate in relation to non-competition, the restriction must be no more than reasonably necessary to protect the employer's legitimate interests.
- Restraints against soliciting or dealing with employer clients/customers should generally be restricted to those with whom the employee has had dealings and/or who the employer may be reasonably expected to be able to influence.
- A reasonable restraint may be enforceable even where there is a confidentiality clause in the employment agreement.
Where non-solicitation clauses will adequately protect an employer, a restraint of trade in addition may be unreasonable.
- It is not necessary to pay the employee something specific for any restraint agreed to, but doing so may increase the chance of the restraint being enforceable.
- It is best to have restraints agreed to at the outset, when the employee is employed.

(http://www.nbr.co.nz/article/why-employers-need-be-reasonable-restraints-trade-weekend-review-ja-137461)