Your New Hire Has a Restraint of Trade, what to Do Before They Start

You found the perfect candidate: Priya, a project manager with exactly the client-facing experience your consultancy needs. The offer is signed and the start date is set. Then, in a casual conversation, she mentions that her last employment contract includes a restraint of trade, and that her former employer has a reputation for enforcing them. What looked like a win for your team now looks like it could pull your business into a dispute you never planned for.

A restraint of trade is not your contract. It sits between your new employee and their former employer. But it can reach into your business in two ways. First, the former employer can sue the employee for breaching it and ask a court to stop them working for you while the dispute runs. Second, and more worrying, if you knew about the restraint and hired the employee anyway, the former employer can sue you directly for inducing the breach. That second claim is the one most employers never see coming, and it is why this decision deserves proper care before day one, not after.

The good news is that Australian courts do not enforce restraints on demand. A clause that tries to stop competition for its own sake is often unenforceable, and many restraints are drafted far wider than the law allows. What matters is what you do between now and the start date. These five steps follow the order you will actually take them.

Step 1: Get the clause in writing and read it yourself

Do not rely on the employee's memory of what the clause says. People routinely misremember the length of a restraint, the area it covers, or whether it has already expired. Ask for a copy of the full employment contract, or at least the clause itself, and read it before you commit to anything. If the employee signed a new contract partway through their last job, ask for that version too, because a restraint added mid-employment raises separate questions about whether it was ever validly agreed.

When you read the clause, identify which restraints it actually imposes:

• Non-compete: stops the employee working for a competitor, usually for a fixed period and within a defined area.
• Non-solicitation: stops the employee approaching the former employer's customers, clients, suppliers or staff.
• Non-dealing: stops the employee dealing with certain clients even when the client approaches them first.
• Confidentiality and intellectual property: these usually survive the end of employment and operate separately from the restraint, which means the employee's obligations about the former employer's information continue regardless.

Also note the dates. A restraint that expired months ago is a non-issue. One that runs for twelve months from the last day of employment is a live constraint on what the employee can do for you.

Step 2: Map the restraint against the role you are offering

The clause only matters to you if it overlaps with the job you are offering. A restraint aimed at a competitor in another city may be irrelevant to a role that serves a different market. Compare what the clause prohibits with what the employee will actually do for you, and answer these questions:

• Does the role involve the same kind of work, in the same territory, for the same kind of clients?
• Will the employee be dealing with clients they served or built relationships with at the former employer?
• Will they be expected to use information that is genuinely confidential to the former employer?

If the answer to all three is no, the practical risk is low. If the answers are yes, the restraint is aimed squarely at the role you are offering, and the risk assessment becomes serious. This mapping step is the one most employers skip, and it is the step that makes everything else easier.

Step 3: Assess whether the restraint would actually hold up in court

Under Australian common law, a restraint of trade is prima facie void as contrary to public policy. The employer seeking to enforce it must show that it protects a legitimate business interest and goes no further than reasonably necessary to protect that interest. The High Court applied this framework in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70, and it is the lens through which every dispute about a restraint starts.

Courts weigh several factors when deciding whether a restraint is reasonable:

• Duration: long enough to protect the interest, but no longer. A few months can be reasonable for a mid-level employee; longer periods are easier to justify for senior people with deep customer relationships.
• Geographic scope: limited to the area where the employer actually operates and where the employee had influence.
• The employee's role: how senior they were, what confidential information they held, and how strong their customer relationships were.
• What the restraint protects: courts protect legitimate interests such as customer connections and confidential information. They do not protect an employer's wish to stop competition for its own sake.

The case of Commsupport Pty Ltd v Mirow [2018] QDC 134 shows how this plays out. A Queensland employer tried to enforce a three-month restraint that stopped a senior computer technician from acting for, or contacting, any client the employer had dealt with in the six months before his employment ended. The court refused to enforce it. The clause swept in every client of the business, including clients the technician had never met and could not influence. As the court put it, he had no more influence over those customers than a stranger. The employer's legitimate interest lay in protecting relationships the technician had actually built, and a clause drawn that widely crossed the line into an unlawful restraint on competition.

Where the employee worked matters too. If the contract is governed by New South Wales law, s 4(1) of the Restraints of Trade Act 1976 (NSW) lets a court enforce a restraint to the extent that it is not against public policy, effectively reading down a clause that is drafted too broadly. In other states, an over-broad restraint is more likely to stand or fall as drafted. The same clause can therefore be treated very differently depending on which state's law applies.

Step 4: Treat the former employer's claim as a live risk to your business

A weak restraint is not a no-risk restraint. Even when a clause is probably unenforceable, the former employer can still act on it, and the first move is usually a lawyer's letter demanding that the employee not start. If that does not work, the former employer can apply urgently to a court for an interim injunction to stop the employee doing the restricted work while the enforceability question is decided. Interim injunctions are heard quickly, often within weeks, and the court does not have to finally decide whether the restraint is reasonable to grant one. During that time, your new hire cannot do the job you hired them for, and you are left covering the gap.

The former employer can also come after you directly. The tort of inducing breach of contract, confirmed by the High Court in Zhu v Treasurer of New South Wales [2004] HCA 56, makes a person who knowingly induces another to breach their contract liable for the loss that follows. If you knew about the restraint, hired the employee anyway, and put them into a role that plainly breaches it, you can be joined in the dispute and face a damages claim yourself. That exposure is real, and it changes the calculus. Things to avoid while the position is uncertain:

• Do not coach the employee to hide the work from their former employer.
• Do not let the employee bring files, client lists or confidential material from the old job into your business.
• Do not put the employee in front of clients they served at the former employer while the risk is unresolved.
• Do not ignore a letter from the former employer's lawyers. Acknowledge it through your own lawyer and keep a record of everything.

Step 5: Decide how to proceed and get it in writing before the start date

Once you know what the clause says, how it overlaps with the role, and how likely it is to be enforced, you have options. Most of them are better than simply hoping the former employer never notices:

• Delay the start: if the restraint is short, the cleanest answer can be to wait it out before the employee starts, or to have them start in a role that does not touch the restricted work.
• Restructure the role: start the employee in a position that does not overlap with the restricted activities, then move them once the restraint expires.
• Seek a release: approach the former employer for a written waiver or deed of release. A short, direct conversation can resolve things; the former employer may simply not care about the employee moving to your business.
• Negotiate the terms: agree a later start date, or agree which clients the employee will not deal with for a period.
• Build safeguards into your contract: include warranties that the employee is free to start work and an indemnity for losses caused by their breach of earlier obligations. Treat the indemnity as a safeguard only, because it is worth what the employee can actually pay.

Whatever you choose, put it in writing before the start date. A written record of the decision, the advice you took, and the steps you followed is your best protection if the former employer later claims you acted recklessly.

When the Restraint Needs a Lawyer's Review

If this situation feels familiar, or you are worried about managing the risk on your own, the point to bring in a lawyer is before the start date, not after the letter arrives. A lawyer can:

• Read the actual clause and the surrounding confidentiality and intellectual property terms, and work out which restraints bind the employee and for how long.
• Assess enforceability under the law of the relevant state, including whether a New South Wales court could read the clause down.
• Give a practical view of the chances of an interim injunction and what that would mean for your operations.
• Negotiate with the former employer or draft a deed of release.
• Draft your employment contract so it does not encourage a breach, with warranties, indemnities and protections for your own confidential information.
• Respond if proceedings are started, including urgent applications to the court.

The Enforceability Question Can Wait; the Injunction Will Not

The one idea worth keeping from all of this is that the reasonableness of the restraint will be decided by a court eventually, but the interim injunction can take your new hire out of your business within weeks. Employers who assume an over-broad clause is dead on arrival often discover that the dispute itself is the problem, not the clause. The most-skipped step is mapping the clause against the role before the start date, and it is the step that gives you the clearest picture of the risk. Do that mapping, treat the former employer's claim as a real possibility, and get the decision in writing before day one.

To recap: a restraint of trade is a contract between the employee and their former employer, usually a non-compete or non-solicitation clause. Australian courts enforce restraints only where they protect a legitimate business interest and go no further than reasonably necessary. If the former employer acts, it can seek an injunction against the employee and can sue you for inducing a breach. The practical path is to get the clause, map it to the role, assess its enforceability, manage the risk of a dispute, and take legal advice before the employee starts.