Enforcing a restraint of trade clause: a step-by-step guide

Three months after your key account manager resigned, she is working for your biggest competitor and two of your largest clients have followed her. Or your former franchisee has opened an identical shop two streets away. Or the person who sold you their business last year is quietly winning back the customers you paid for. Each of these situations points back to the same document: the restraint of trade clause in the contract.

A restraint of trade clause restricts what a person can do after a commercial relationship ends, most commonly by stopping them from competing (a non-compete clause) or from soliciting your clients and staff (a non-solicitation clause). If the clause is breached, enforcement can end in one of two ways: a negotiated cessation, where the other side stops the conduct and gives you an undertaking, or a court order, usually an injunction that forces them to stop, with damages to follow. This article walks through the path from first suspicion to that outcome. It also covers the trap most business owners miss: a restraint is only enforceable if it is reasonable, and the speed of enforcement often decides the result.

What you need before you start

Work through these prerequisites before you take any step. Each one determines whether enforcement is realistic.

• A written clause that still binds the person: The restraint must be in a signed contract, such as an employment agreement, a sale of business agreement, a franchise agreement or a shareholders' agreement. Check when the restraint period started and when it expires. A restraint that has already lapsed cannot be revived, and a person who was never bound by the contract cannot be restrained.
• A restraint that covers the conduct: Match the behaviour to the clause. A non-compete clause stops the person operating or working in a competing business. A non-solicitation clause stops them approaching your clients or your staff. If the clause says "must not solicit clients" and the person is competing but not soliciting, the clause may not bite at all.
• A restraint a court is likely to call reasonable: The party enforcing a restraint carries the onus of proving it is reasonable, as the New South Wales Court of Appeal confirmed in DXC Eclipse Pty Ltd v Wildsmith [2023] NSWCA 98. The court weighs the interest the restraint protects, such as confidential information, client connections or the goodwill you bought, against its duration, its geographic reach and the activities it covers. A 12-month, Australia-wide non-compete for a junior salesperson will rarely survive. A six-month restraint confined to your region and your own clients may.
• Evidence of the breach: You need to be able to show what the person is doing, when they started, and how it breaches the specific clause. Evidence gathered later, or reconstructed from memory, is far weaker than evidence collected at the time.
• An understanding of the rules in your state: In NSW, s 4 of the Restraints of Trade Act 1976 (NSW) allows a court to enforce a restraint "to the extent to which it is not against public policy", even if it is not drafted in severable terms. An over-wide restraint can therefore be read down rather than struck out entirely. In most other states an unreasonable restraint is void, which is why well-drafted clauses cascade: a longest restraint, then shorter or narrower alternatives, so the court can enforce a lesser limb if the widest one fails.

The prerequisite that trips most people up is reasonableness. Business owners assume a signed contract is enough, and discover in court that the clause they relied on is unenforceable because it was drafted wider than necessary. If your clause is doubtful on this score, treat that as a warning sign and get advice before spending money on enforcement.

Enforcing the restraint, step by step

Once the prerequisites are satisfied, enforcement follows a sequence. Most disputes resolve at the letter stage; only a minority reach court.

Step 1. Confirm the clause, the period and the conduct

Re-read the restraint clause before doing anything else. Identify what type of restraint it is, note the restraint period and how it is defined, and check the defined terms: what counts as a "competing business", a "client" or the "territory" may decide whether the conduct breaches the clause at all. If the clause is drafted as a cascade, record each limb, because a court may enforce a shorter limb if the longest fails.

Step 2. Gather evidence of the breach

Enforcement stands or falls on evidence. In AEI Insurance Group Pty Ltd v Martin [2023] FCA 914, an injunction enforcing an insurance broker's restraint was discharged, with costs against the employer, when the former employee produced evidence that undercut the inferences the injunction had been granted on. Collect everything now, while it is fresh:

• Business records: ASIC searches for new company registrations, ABN lookups, the new business's website, social media profiles and the person's LinkedIn activity.
• Client and staff movements: emails, call logs and records showing which clients have moved and when, and any resignations of staff who followed the person.
• Third-party statements: accounts from clients, suppliers or former colleagues of approaches, offers or solicitation.
• A timeline: date every event, because courts weigh both how the conduct escalated and how promptly you acted.

Keep the originals and a secure copy of everything. Do not confront the person before the evidence is in hand: the letter that follows is far more effective when it can point to specific conduct.

Step 3. Send a letter of demand

A letter of demand has two purposes: it puts the other side on notice that you know about the breach, and it opens the door to a commercial resolution. Set out the clause, the conduct you say breaches it, and a date by which the conduct must stop, and state that you reserve your rights. Keep the tone commercial rather than threatening. A measured letter is more likely to produce a response, and it creates the paper trail that shows a court you tried to resolve the matter before litigating.

Step 4. Escalate within the commercial relationship

If the conduct continues, send a follow-up letter restating the demand. Consider whether you hold commercial leverage, such as services the person still needs from you, payments owing, or access to information, and whether it can be used lawfully to encourage compliance. Be careful here: withholding performance under the contract can itself put you in breach, and heavy-handed steps can be portrayed as unconscionable conduct. This is the point at which it is worth obtaining legal advice before you act.

Step 5. Instruct a lawyer

Have a lawyer review the clause and the evidence before any court application. The lawyer will assess whether the restraint is reasonable and enforceable, whether the evidence supports the breach, and whether the dispute justifies the cost. If enforcement is viable, the lawyer will send a formal letter of demand on firm letterhead, which carries more weight than a business-to-business letter, and will advise on forum: restraint claims usually run in the Supreme Court, where urgent applications can be heard quickly in the duty list.

Step 6. Apply for an injunction

The court's main enforcement tool is the injunction: an order that the person stop the conduct. Because restraint periods are short, the practical remedy is an interlocutory injunction, an urgent interim order that holds the position until trial. The applicant must show a serious question to be tried and that the balance of convenience favours the injunction, and the court will normally require an undertaking to compensate the other side if the injunction is later found to have been wrongly granted. The application is made on affidavit. Urgency matters: delay in applying can be fatal, because courts are reluctant to grant urgent relief to a party that has sat on its rights. If the injunction is granted, the final hearing can then deliver a permanent injunction and damages for the loss suffered.

Step 7. Enforce the order

If the person ignores an injunction, they are in contempt of court, and the court can impose sanctions including fines and, in serious cases, imprisonment. The damages claim runs separately, and at final judgment you may recover compensation for the loss the breach caused, together with costs if you succeed.

Where enforcement typically gets held up

Enforcement most often stalls at one of four points:

• Waiting too long: Restraint periods are measured in months, not years. Delay eats the very period the injunction is meant to protect, and it weakens the urgency argument. Start the week you suspect a breach, not the month after.
• Enforcing an unreasonable clause as written: A clause that is plainly wider than needed will fail, and you may face a costs order. In NSW the court can read the clause down; elsewhere you may be left with nothing to enforce.
• Relying on thin evidence: The AEI Insurance case shows the risk. An injunction granted on assertion can be discharged with costs against you when the other side brings contrary evidence.
• Ignoring costs exposure: Interlocutory applications are expensive, you may have to pay the other side's costs if you lose, and your undertaking as to damages can bite if the injunction was wrongly granted.

A note on the proposed ban on non-compete clauses

The federal government announced in the 2025-26 Budget that it plans to ban non-compete clauses for employees earning below the high income threshold, which is $183,100 a year from 1 July 2025, along with wage-fixing and no-poaching agreements. According to the Treasury, the reforms are expected to take effect from 2027 if legislation passes, and a consultation paper was released in July 2025. Until that law is enacted, non-compete and non-solicitation clauses remain enforceable if they are reasonable. The proposal is aimed at non-compete clauses in employment; restraints in sale of business, franchise and shareholder arrangements are not its focus. If you employ people at or near the threshold, this is worth watching, but it is not a reason to delay enforcement today.

Where a lawyer is essential

The letter and evidence stages are manageable with guidance, but the injunction application itself is not a do-it-yourself exercise. A legal practitioner will:

• assess whether the clause is enforceable, including the reasonableness of its duration, area and scope, and the onus you carry to prove it;
• draft the demand, negotiate undertakings and explore a commercial settlement before costs accumulate;
• prepare the affidavit evidence and the urgent interlocutory application, and argue the balance of convenience;
• advise on the risk of repudiation or unconscionable conduct when you escalate commercially; and
• manage the costs exposure, including the undertaking as to damages you will be asked to give.

The affidavit must prove both the breach and the reasonableness of the restraint, the application must satisfy the court on urgency, and the costs consequences of getting it wrong are significant. Take advice before you commit to a course of action.

Why enforcement is a race against the clock

Everything in this process, from the letter to the injunction application, is governed by one constraint: time. A restraint period of six or twelve months is short enough that the interlocutory injunction usually decides the dispute. By the time a full trial is reached, the restraint may have expired and the fight is largely over. The business owner who acts in the first weeks, with the clause confirmed and the evidence gathered, is the one who gets the injunction. The one who waits while a client list migrates is the one who watches the period run out.

In short: confirm the clause covers the conduct and is reasonable, gather evidence immediately, put the other side on notice in writing, and escalate through a lawyer to an urgent injunction application if the conduct continues. Remember that in NSW a court can enforce an over-wide restraint only to the extent it is not against public policy, and that the proposed federal ban on non-compete clauses does not yet change the law. If you are facing a breach, move now.