What is a restraint of trade clause?

This material is designed and intended to provide general information in summary form on legal topics, current at the time of publication, for general informational purposes only. This is not legal advice. 

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Introduction 

Restraint of trade clauses (ROTs) are terms in a contract between a worker and a business that are designed to restrict a worker’s conduct, especially once the worker stops working for the business.   

ROTs can be divided into three categories:  

1. Non-compete – these clauses are designed to stop a worker from working for or starting a competing business  

1. Non-solicitation – these clauses are designed to prevent a worker from taking other employees, clients or customers away from the business.  

1. Confidentiality or non-disclosure – these clauses are designed to prevent an employee from sharing, using, or misusing information they have obtained during their employment. Examples of confidential information include:  

• trade secrets,  

• client lists or contact details  

• financial information.   

These clauses can overlap, or be called different things in different employment contracts. 

Can my employer enforce a Restraint of Trade clause? 

The starting position is that ROTs are unlawful or invalid. 

However, restraints can be lawful if: 

• they are reasonable to protect the employer’s legitimate interests ; and 

• the restraint is no more than is reasonably required to protect the employer’s interests. 

What are ‘legitimate interests’? 

Legitimate interests can include: 

• Goodwill or the reputation of the business; 

• Client relationships; 

• Trade secrets or confidential information; 

• Maintaining current staff. 

In addition to identifying the legitimate business interest, the employer must also be able to show that the person they are seeking to restrain has some ability or knowledge to damage relationships, expose confidential information, or encourage other employees to leave.   

In other words, the risk that an employee might harm those legitimate business interests cannot be theoretical; there must be a legitimate risk that damage to the business will occur if a restraint clause is not enforced. 

What is ‘reasonably required’? 

A restraint of trade clause can only restrain conduct that is reasonably necessary to protect a legitimate interest. It will depend on: 

• The length of time the restraint can last; 

• What geographical area the restraint covers; 

• The activities the employer wants to restrain; 

• The seniority of the employee and their ability to cause damage to the business; 

• How much the employee is paid. 

What if my employer says that I have breached the ROT clause in my employment contract? 

Ultimately, to enforce a ROT clause, an employer must go to court and obtain what is called an injunction to stop you from doing anything that might breach the ROT clause.  This is an expensive exercise for an employer to undertake, and they must be able to convince the court that the ROT is both protecting a legitimate business interest, and that the restraint is reasonably required.   

The Federal Government has recently announced that it plans to ban ROT clauses in employment contracts for workers earning less than the high income threshold (currently $190,100 as of July 2026).  The Government has said that it plans to introduce these laws around July 2027. 

What if I have been unfairly dismissed? 

In general, it is unlikely that an employer who has found to have unfairly dismissed an employee can rely upon a ROT to stop that employee working elsewhere. 

Restraint of Trade clauses in employment contracts can be long and complex.  The Working Women’s Centre SA has limited availability to provide advice on ROT clauses.  If we are unable to offer an appointment, we can provide you with further information on where to find a private lawyer. 

Last updated: 30 September 2026