Your Guide to Restraint of Trade Clauses

 

 

What is a Restraint of Trade Clause (‘RTC’)?   

A RTC ultimately acts to hinder an employee’s option post-employment when they’ve decided it’s time to ‘throw in the towel’.  A RTC operates to protect an employers’ interests first and foremost. 

 

Why are Restraint of Trade Clauses used? 

Employers include RTC’s as a way to prevent the sharing of; 

• client/customer information 
• trade secrets 
• confidential information 
• intellectual property 

 

Types of Restraints 0f Trade Clauses  

• ‘Garden Leave’; placing an employee on leave for their notice period while still being paid as usual.  
• Non-competitive restraint; prohibiting an employee from going out on their own or working for a competitor. 
• Non-solicitation restraint; prohibit employees from approaching customers/clients, suppliers, or employees from a previous employer. 

 

…Is it actually just a crock of sh*t?  

Enforcing a RTC is generally deemed as anti-competitive behaviour by the Authority and unfavourably looked upon due to its impact on the individual pursuing work in their chosen field! The clause is only beneficial to the employer therefore the onus to determine and explain the restraint terms is on them.  

 

 

Fun Fact #1: If an employee has been unjustifiably dismissed, a restraint of trade clause may no longer apply. 

Recent determinations from the Employment Relations Authority show that through use of section 83 of the Contract and Commercial Law Act 2017, employee restraints are typically eased and shortened. 

 

For a RTC to be enforceable it must be reasonable and drafted on a ‘catch-all’ approach.  

 

 

Plenty of factors come into consideration here, such as;  

• Job position – where is it on the ‘pecking order’?   
• Access to information – what info can this employee access, and how detrimental would it be if it were unveiled?  
• Type of industry – is it highly specialised i.e. niche technology  
• Time period – how long is necessary to restrain trade in order to genuinely protect the former employer’s interests?  

 

Fun fact #2: It’s uncommon for a restraint clause to withstand for more than 12 months

• Geographical scope – may be limited to a particular area or a group of people due to location and/or population limits.  
• Compensation – has the employee been compensated fairly and appropriately  in the exchange for agreeing to be bound by a restraint. 

At the end of the day, Employment Law in New Zealand always requires that both parties act in Good Faith, even at the end of engagement.  

 

 

 

If you are believe your rights may be infringed or even just have questions about restraint of trade claused feel free to call Sacked Kiwis toll-free hotline: 0508 22 77 99. Our Team of Legal Experts is ready to help you, who you can meet here on our “Our Team” Page.

 

Legal Disclaimer: The content posted on the Sacked Kiwis website should not be considered or relied upon as legal advice or opinion. The information presented here is not intended to serve as legal guidance. Over time, laws and regulations evolve, potentially altering the accuracy of previously shared information. Updates in jurisprudence or legislation, which could happen without immediate notice, may render the legal information on this platform outdated.