Restraint clauses in Australian contracts, the types and what courts enforce

You are sitting with a contract that matters to you. It might be an employment agreement for a new sales director, the sale agreement for a business you spent a decade building, or a franchise agreement you are about to sign. Near the back there is a clause with a name like "non-compete", "non-solicitation" or "restraint of trade", and it says what the other party can and cannot do after the relationship ends. This is the clause people pause on, because it reaches into the future.

That family of clauses is what this article dissects. Restraint clauses, also called restraint of trade clauses, limit what a person can do during or after a business relationship, and they appear in employment contracts, contractor agreements, business sale agreements, shareholder arrangements and franchise deals. They protect legitimate interests such as purchased goodwill, confidential information, client connections and workforce stability. Australian law starts from a presumption against them: a restraint is only enforceable if it is reasonable between the parties and in the public interest, as the High Court confirmed in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40. Courts will not enforce a restraint that goes further than reasonably necessary, and in New South Wales the Restraints of Trade Act 1976 (NSW) lets a court read an overbroad clause down rather than strike it out entirely.

The restraint clause family, clause by clause

A restraint package is usually a stack of separate clauses, each aimed at a different risk. Here is what each clause does, the drafting choice that decides whether it works, and the traps to watch for.

Non-compete: the clause that stops competition

A non-compete clause prevents the person from carrying on, or working in, a competing business within a defined area for a defined period after the relationship ends.

• What it protects: the business itself, its clients and its information, by keeping the person out of the market.
• The drafting choice that matters: how the competing business is defined. A clause aimed at "carrying on a digital marketing agency within 10 km of our Sydney office" is far more defensible than one that bars "any role in marketing anywhere in Australia".
• When it holds up: courts are more willing to enforce non-competes against sellers of a business, because the buyer has paid for the goodwill and needs time to bed in relationships. Against employees, a non-compete is the hardest restraint to enforce and is generally reserved for senior roles with real access to strategy, trade secrets or key clients.
• The trap: for junior or mid-level staff, a broad non-compete is usually unenforceable, and the reform wave makes it riskier still. The Commonwealth has announced it will ban non-compete clauses for low- and middle-income workers, with the reforms expected to take effect from 2027 after consultation and legislation pass parliament. That is a strong reason not to build your protection around a non-compete for staff below senior level.

Client non-solicitation: the clause that protects your revenue

A non-solicitation clause stops the person approaching, enticing or soliciting your clients or suppliers to take their business elsewhere after they leave.

• The drafting choice that matters: the client pool. The most defensible version limits the restraint to clients the person actually dealt with in the last 12 months. A version that covers "any client of the company" usually fails, because it protects more than the relationships the person could realistically take with them.
• A related variant: co-worker non-solicitation, which stops a departing employee from asking colleagues to resign and join them.
• When it holds up: generally more enforceable than a non-compete, because it targets a specific, identifiable loss, namely the client relationship. NSW courts have granted interim injunctions to hold the line on non-solicitation restraints pending a final hearing, as in Ecolab Pty Ltd v Garland [2011] NSWSC 1095.
• The trap: drafting it so broadly that it effectively bars all dealings with a client. Courts may then treat it as a non-compete in disguise and apply the stricter test.

Non-dealing: the stricter cousin of non-solicitation

A non-dealing clause goes a step further than non-solicitation. The person must not deal with protected clients at all, even if the client approaches them first.

• The drafting choice that matters: whether the clause bites on passive dealings, meaning client-initiated contact, as well as active solicitation.
• The trap: this is a heavy restriction on a person's ability to earn a living, so it must be scoped tightly to actual client relationships. A non-dealing clause that catches everyone the company has ever dealt with will be read down.

Employee non-poach: protecting your team

A non-poach clause prevents the departing person from inducing or enticing your employees to resign and join them. Workforce stability is a recognised legitimate interest, particularly for senior or specialist teams.

• The distinction to keep straight: a clause inside an employment contract, which stops one person poaching their former colleagues, is one thing. A separate agreement between two businesses not to hire each other's staff, known as a no-poach agreement, is another. The Commonwealth plans to ban no-poach agreements and wage-fixing agreements under the same reform package as non-competes.

Confidentiality: the restraint that never expires

A confidentiality clause prohibits the use or disclosure of confidential information and trade secrets. Unlike the other restraints, it continues after the relationship ends, often indefinitely.

• Why it matters: it is usually the most defensible restriction you have, because it protects information rather than restricting competition.
• The drafting choice that matters: defining what counts as confidential information with enough specificity that it can be identified. Courts do enforce these clauses, as in Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717, where an injunction was granted to stop disclosure of the plaintiff's confidential information. But a clause that simply says "all information" is much harder to enforce than one that identifies client lists, pricing, systems and know-how.
• The trap: a confidentiality clause does not stop a competitor using general skill and experience. Pair the clause with access controls, marked documents and exit procedures rather than assuming the clause alone protects you.

Exclusivity: restraint during the relationship

An exclusivity clause requires the person to devote their time and effort to your business only, with no conflicting roles and no moonlighting. Outside employment, you see the same idea in exclusive supply and distribution terms in commercial contracts.

• Why it is less controversial: restraints operating during the term of a relationship are generally easier to enforce than post-term restraints, because the person is still being paid and the restriction is the price of the role.

Territory and time: the dials on every restraint

Every restraint is defined by a territory and a period: an area such as a 10 km radius, a state or Australia-wide, and a time such as 3, 6, 12 or 24 months.

• The drafting choice that matters: matching the dials to reality. Territory should track where the person actually operated and where your clients are. Time should track how long it takes to hand over accounts or bed in a replacement.
• The key rule: reasonableness is assessed at the time the contract was signed, not with the benefit of hindsight, as the NSW Court of Appeal confirmed in Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267.
• The trap: boilerplate "Australia-wide, two years" restraints are usually dead on arrival, because they are not tied to any market the person could realistically affect.

Cascading restraints: drafting in the alternative

A cascading or step-down clause is not a separate restraint but a drafting device. It sets out a ladder of alternatives, for example 12 months, then 9, then 6, each with a matching area, so that if a court finds the widest option unreasonable it can still enforce a narrower one.

• Why it works: the NSW Court of Appeal confirmed that cascading clauses are not void for uncertainty in Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267, following J.Q.A.T. Pty Ltd v Storm [1987] 2 Qd R 162.
• The NSW special rule: under s 4(1) of the Restraints of Trade Act 1976 (NSW), a restraint is "valid to the extent to which it is not against public policy, whether it is in severable terms or not". That means a NSW court can read an overbroad restraint down to what is reasonable rather than strike it out. Outside NSW, read-down depends on the general law and the common law "blue pencil" severance rules, which only remove genuinely severable parts.
• The trap: do not load the ladder with an absurd top rung to scare the other side. If the widest option is unrealistic, it can undermine the credibility of the whole clause.

Garden leave: the alternative to a restraint

Garden leave is not a post-employment restraint at all. The employee stays employed and on pay during their notice period but is kept away from clients, information and the office while you transition.

• Why it is useful: it achieves much of what a non-compete achieves, namely separation from clients and information, without the enforceability fight, because the person is still employed and still being paid.
• The drafting point: a garden leave clause needs a clear trigger, a defined period and a promise to keep paying. It usually sits alongside the post-employment restraints rather than replacing them.

Optional clauses worth adding

Not every contract needs all of these, but each earns its place in particular situations.

• Non-disparagement: a promise not to criticise the business or its people; worth including in sale and senior-exit contexts where reputation matters.
• Notification of a new role: requiring the departing person to tell their new employer about the restraints; this makes enforcement practical rather than theoretical.
• Return of property and data: requiring delivery of laptops, phones, client lists and records on exit, often the most practically useful lever in a dispute.
• Acknowledgement of reasonableness: the person confirming the restraints are reasonable and that they have had advice; helpful evidence, though a court still applies the objective test.
• Payment in lieu or buy-out: an option for the employer to keep the person out of the market by paying during the restraint period; sometimes the cleanest way to make a restraint stick.

How an Artificer Legal practitioner would review these clauses

Whether you are drafting a restraint package or you are the person being restrained, the review starts in the same place: identify the interest, then test each clause against it.

On the drafting side, an Artificer Legal practitioner would start from the interest rather than the template. What is actually at risk: client relationships, confidential information, purchased goodwill or workforce stability? Each clause is then drafted to that risk. We would push back on blanket non-competes for junior staff, insist on defined client pools rather than "any client of the company", require realistic territory tied to the person's actual dealings, and recommend a cascading structure so a court can enforce a narrower version if the widest one fails. We would also flag the reform timeline, because with non-competes for low- and middle-income workers facing a ban from 2027, employment contracts built around non-competes will need to be restructured toward non-solicitation and confidentiality.

On the reviewing side, when you are the person being restrained, we would work out which clauses actually bite. Does the client pool match the clients you genuinely dealt with? Is the territory realistic? Were the cascading options reasonable at the time of signing? We would also assess whether the NSW read-down power or common law severance would save or cut the clause, and what a negotiated undertaking might look like if the clause is challenged.

The order of negotiation matters too. Agree the protected interests first, then the scope of activities, then time and territory, then the enforcement mechanics such as notice requirements and injunctions. Deal with the clause at signing rather than at the exit, because once someone has resigned, both sides are fighting over words they signed months or years earlier.

How the protected interest is defined

If one choice decides whether a restraint package works, it is how the protected interest is defined. The client pool in a non-solicitation clause, the description of the competing business in a non-compete, the specification of the confidential information: these definitions are what a court actually weighs. A clause that is strict but tied to a genuine, identifiable interest survives. A clause that is broad on paper but vague about what it protects gets read down or struck out, because the court cannot see what legitimate interest it serves.

The practical picture is simple. A restraint package combines non-compete, non-solicitation, non-dealing, non-poach, confidentiality and exclusivity clauses, each targeting a different risk. Courts enforce restraints only to the extent reasonably necessary to protect a legitimate interest. Cascading drafting and the NSW read-down power improve the odds of partial enforcement, while the Commonwealth's planned ban on non-competes for low- and middle-income workers from 2027 makes non-solicitation and confidentiality the more durable building blocks for most employment contracts. Getting the definitions right, with a lawyer's early review, is the cheapest insurance you can buy against a clause that fails exactly when you need it.