Restraint of Trade Clauses: Are They Enforceable in Australia? (2026)

A restraint of trade clause is a contractual provision that restricts what an employee can do after their employment ends. The most common types are non-compete clauses (preventing the employee from working for a competitor or starting a competing business), non-solicitation clauses (preventing the employee from approaching the former employer's clients or customers), and non-poaching clauses (preventing the employee from recruiting former colleagues). These clauses are typically found in employment contracts, share option agreements, and partnership agreements.

They specify a duration (e.g., 6 months, 12 months, 24 months), a geographic area (e.g., within 10 km, within New South Wales, within Australia), and the scope of restricted activity (e.g., any competing business, specific industry sectors). Restraint clauses serve a legitimate purpose in protecting an employer's confidential information, trade secrets, client relationships, and business goodwill.

However, they also restrict a person's ability to earn a livelihood, which is why Australian law takes a sceptical approach. The starting point under Australian common law is that all restraints of trade are void and unenforceable unless the party seeking to enforce the restraint (the employer) can prove that it's reasonable in the circumstances.

The fundamental principle in Australian law is that restraint of trade clauses are prima facie void — meaning they are presumed to be unenforceable unless the employer can demonstrate that the restraint is reasonable. This principle comes from the landmark English case Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company (1894) and has been consistently applied by Australian courts. To be enforceable, a restraint must satisfy two requirements.

First, it must protect a legitimate business interest of the employer. Legitimate interests include confidential information and trade secrets, client and customer relationships, the stability of the employer's workforce, and goodwill of the business.

A restraint cannot be used simply to prevent competition — competition alone isn't a legitimate interest. Second, the restraint must go no further than is reasonably necessary to protect that legitimate interest. A restraint that is broader than necessary in terms of duration, geographic scope, or the activities restricted will be struck down as unreasonable. The burden of proof is on the employer to establish reasonableness.

What this means is that if a dispute goes to court, it's the employer who must justify why the restraint is necessary and proportionate. The employee doesn't need to prove it's unreasonable — the employer must prove it's reasonable.

When a restraint of trade clause is challenged in court, the court considers a range of factors to determine whether it is reasonable and enforceable. Duration is critical — a 3-month restraint is much more likely to be upheld than a 24-month restraint. Courts generally view 6-12 months as the upper range of reasonableness for most employees, though longer periods may be justified for senior executives with access to highly sensitive information.

Quick version: Geographic scope is assessed relative to the employer's actual business area. A nationwide restraint for a business that only operates in one city is likely to be struck down.

Industry scope matters — a restraint preventing any work in an entire industry is harder to justify than one limiting work with direct competitors. The employee's seniority and role are relevant — a restraint on a CEO with access to all strategic plans is more justifiable than one on a junior employee with limited confidential knowledge. The nature of the information the employee had access to (client lists, pricing strategies, product development plans) is assessed. Whether the employee received consideration (payment or benefit) specifically for agreeing to the restraint strengthens enforceability.

Courts also consider the potential hardship to the employee if the restraint is enforced, and the broader public interest. Each case is assessed on its individual facts (and yes, this applies to casuals too).

Many modern employment contracts include cascading or ladder restraint clauses. These are structured as a series of alternative restraints with decreasing levels of restriction. For example, a cascading clause might state: the employee must not work for a competitor within Australia for 24 months; if that is unenforceable, then within New South Wales for 18 months; if that's unenforceable, then within Sydney for 12 months; if that's unenforceable, then within 20 km of the employer's premises for 6 months.

The purpose of cascading clauses is to give the court options — rather than striking down a single restraint as unreasonable, the court can read down to the highest level of restraint that is reasonable and enforceable. Australian courts have generally accepted cascading clauses as valid, provided each alternative level is clear and severable.

The High Court confirmed in Woolworths Ltd v Olson (2004) that courts can sever unreasonable portions of a restraint and enforce the remainder, provided the reasonable portion reflects the parties' intention. However, cascading clauses aren't a guarantee of enforceability. If even the narrowest level of the cascade is unreasonable, the entire restraint falls away. A poorly drafted cascade with levels that are all too broad will not save the employer.

Employees should pay close attention to the narrowest level of any cascading clause in their contract.

In 2025, the Australian Government announced a proposed ban on non-compete clauses for workers earning below the high-income threshold. The policy, which is expected to come into effect in 2027, would prevent employers from including non-compete clauses in employment contracts for workers earning below the threshold (currently $175,000 per year, indexed annually). This reform targets the growing practice of imposing non-compete clauses on low and middle-income workers — including hairdressers, fitness instructors, childcare workers, and retail staff — who pose little genuine risk to an employer's confidential information or business goodwill.

Quick version: Research by the Treasury found that non-compete clauses suppress wages, reduce job mobility, and stifle competition, particularly for workers who lack the resources to challenge unreasonable restraints in court. The proposed ban wouldn't affect non-solicitation or non-poaching clauses, which would remain subject to the existing common law reasonableness test.

It would also not affect workers above the high-income threshold, who would continue to be subject to restraints assessed under the current framework. The reform is part of a broader package aimed at promoting competition and worker mobility. Until the legislation passes and commences, the existing common law principles continue to apply to all restraint of trade clauses.

Before signing an employment contract with a restraint of trade clause, take these practical steps. Read the clause carefully and understand what it restricts, for how long, and over what geographic area. Negotiate before signing — restraint clauses are often negotiable, particularly for mid-level employees.

The short answer? Ask for the duration or scope to be reduced, or request that the clause only apply if you're terminated without cause. Seek legal advice, especially if the restraint is broad — an employment lawyer can assess whether the clause is likely to be enforceable and suggest amendments.

If possible, get specific carve-outs for activities you may want to pursue (e.g., freelance work in a different sector, working for non-competing businesses). After leaving a job with a restraint clause, do not assume it is automatically enforceable — many restraints are never enforced, and many wouldn't survive a court challenge. However, do not ignore it either. If your former employer sends a cease and desist letter or threatens legal action, seek legal advice immediately.

Keep evidence of your new role's duties to demonstrate they don't compete with your former employer's business. Avoid taking confidential information, client lists, or proprietary materials when you leave — this strengthens any enforcement claim your former employer might make.

If your former employer threatens to enforce a restraint of trade clause against you, do not panic — but do take it seriously.

Check whether it's a cascading clause and identify the narrowest level.

If your former employer threatens to enforce a restraint of trade clause against you, do not panic — but do take it seriously (and yes, this applies to casuals too).

• obtain a copy of your employment contract and review the exact terms of the restraint. Note the duration, geographic scope, and restricted activities
• seek legal advice promptly
• do not concede enforceability without legal advice. Many employers rely on intimidation — sending a threatening letter from their lawyers in the hope that the former employee will comply without challenging the restraint

An employment lawyer can assess the likely enforceability of the clause based on your specific circumstances — your role, seniority, access to confidential information, and the nature of your new employment or business. Many employment lawyers offer free initial consultations, and community legal centres can provide guidance.

In practice, many restraints would not be upheld by a court. Fourth, consider whether your former employer is likely to actually pursue court proceedings.

Litigation is expensive, and many employers are unwilling to invest significant legal costs unless the employee poses a genuine competitive threat. Fifth, if proceedings are commenced, your former employer must apply for an interlocutory injunction to restrain you. The court will assess the balance of convenience and whether damages would be an adequate remedy.

If you can demonstrate that the restraint is unreasonable, the injunction may be refused.