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The most common situation: an employee resigns, accepts a role with a competitor or starts their own business, and within days receives a letter threatening an injunction to enforce the non-compete clause in their old contract. The letter is designed to look definitive. In practice, restraint of trade clauses in NSW are not automatically enforceable. Under the Restraints of Trade Act 1976 (NSW), a restraint is only valid to the extent that it is reasonable. An employer who cannot demonstrate a legitimate business interest worth protecting or whose clause is wider than necessary to protect that interest will not succeed in court.
At Leo Lawyers, we advise employees, executives and business owners on their rights and obligations under restraint of trade clauses. We assess whether a restraint is enforceable on your specific facts, advise on the risk of proceeding with a new role or business and act in urgent injunction proceedings when an employer moves to court. We also act for employers seeking to enforce a restraint against a former employee who has moved to a direct competitor.
Our restraint of trade services cover:
Over 18 Years of Experience in Commercial Litigation and Employment Law
Get clear advice on what you are actually bound by before you respond.
The short answer is: it depends on the clause and the circumstances. In NSW, restraint of trade clauses are governed by the Restraints of Trade Act 1976 (NSW). It provides that a restraint is valid to the extent that it is not against public policy. Courts assess enforceability by asking whether the restraint goes no further than is reasonably necessary to protect a legitimate business interest of the employer.
What Counts as a Legitimate Business Interest?
An employer cannot enforce a restraint simply to prevent competition. The restraint must protect something the law recognises as worth protecting. The two main categories are confidential information, such as client lists, pricing, trade secrets and business strategies and client goodwill, meaning the relationships the employee developed on behalf of the employer that the employer would lose if the employee could immediately solicit those clients. A restraint that goes beyond protecting these interests, such as preventing an employee from working in an entire industry for two years, is unlikely to be enforced.
Many modern employment contracts include cascading restraint clauses. These specify multiple combinations of duration and geographic scope, such as 12 months in Australia or 6 months in NSW or 3 months in Sydney, with the clause applying to whichever combination is found to be reasonable.
The Restraints of Trade Act 1976 (NSW) also gives courts the power to read down a restraint clause, meaning to enforce it in a modified and more limited form rather than either enforcing it as written or striking it out entirely.
A cascading clause is designed to make the read-down process easier. Whether the court will read down your clause and to what extent depends on the specific drafting and the facts of the employer’s legitimate interest.
From 2024 into 2025, the Australian Government has been actively consulting on whether to ban or limit non-compete clauses in employment contracts, particularly for low and middle-income workers.
Treasury’s consultation paper noted that approximately 20% of Australian workers are currently bound by non-compete clauses, many of which are unlikely to be enforceable but are never challenged. The proposed reforms – if enacted – would significantly limit the ability of employers to impose post-employment restraints on employees below a salary threshold.
As of the time of writing, no legislation has passed. If you are bound by a non-compete clause, the current law, namely the Restraints of Trade Act 1976 (NSW) and the common law reasonableness test, still applies. We monitor developments and advise clients on how any changes affect their position.
When a restraint is breached, hours matter. We execute our legal strategy with strict timelines to secure your position.
(Immediate)
(Same Day)
(1 to 2 Days)
(2 to 5 Days)
(Ongoing)
We act for employees and executives who have received legal threats over a non-compete clause and need to know where they actually stand. We also act for business owners selling or buying a business where a restraint is part of the deal, employers who need to protect genuine business interests when a senior employee departs, and individuals navigating the overlap between garden leave and post-employment restrictions.
Book a consultation with Damin Murdock today.
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