A non-compete clause in Australia should be enforced when the business (usually an employer or new business purchaser):
- has advice from an employment law firm that the restraint is likely to be enforceable
- has evidence that a person has breached the clause
- the competing activities have caused harm to the business
- the harm is significant enough to warrant enforcing the clause
Ultimately, the question of when a non-compete should be enforced is about weighing up the cost of enforcement with the harm caused to the business.
Is the restraint clause enforceable?
If a non-compete clause is not enforceable then there’s no point spending money to try and enforce it. Courts will only uphold a restraint clause that is both:
- reasonable, and
- necessary to protect the interests of the business
The first step should be to get advice from an employment lawyer Brisbane, experienced in non-compete clauses.
Is there evidence that a person has breached the non-compete clause?
It is not enough to assume that a clause has or might be breached. There must be evidence that the clause has not been complied with. This may take the form of:
- evidence that the employee has launched a business after employment
- customers confirming that they have been contacted by the person
- computer logs or records, including emails
- recorded telephone conversations (that have been legally obtained)
- company or business registration and proof that the person is carrying out competing trading activities
Has the business suffered loss because of competing activities?
The need to show that some loss has been suffered is only relevant if the restraint is being enforced to recover money. Loss does not necessarily need to be proven if the business is instead seeking an injunction.
An injunction is a Court order that prevents the person from continuing to breach the non-compete.
Is the business willing to spend money to enforce the clause?
Lawyers don’t often talk about how much money it costs to enforce a non-compete clause. The bottom line is that it is expensive.
The cost is even higher if a business is seeking both damages and injunction.
Potential legal costs need to be weighed up against the value of the harm to the business. Sometimes this harm is easy to calculate and sometimes it is the prospect of harm that should be the focus.
And remember, Australia is likely to enact new laws banning most non compete clauses by 2027.
Frequently Asked Questions
When is it appropriate for an employer to enforce a non-compete clause?
Enforcement is appropriate when the employer has advice confirming the clause is enforceable, evidence of breach, proof of harm or risk of harm to the business, and when the cost of enforcing is justified by the value of the harm.
What makes a non-compete clause legally enforceable in Australia?
A clause will only be upheld by the courts if it is both reasonable (in scope, duration and geographic extent) and necessary to protect the legitimate interests of the business.
What kind of evidence does an employer need to show a non-compete clause has been breached?
Useful evidence includes customer statements that they were approached, email or computer logs, proof that the former employee is carrying out competing activities or has set up a business in breach of the clause.
Does the employer always need to prove actual loss from the breach before enforcing the clause?
Not always. While proving loss is needed if the employer seeks damages, if the employer is seeking an injunction to stop continuing competition, it may not be necessary to show quantified loss.
How should a business weigh the decision to enforce a non-compete clause?
The business should assess the enforceability of the clause, the strength of evidence for breach, the likely harm or risk of harm, the cost of legal action (including injunctions or damages), and whether enforcement is a proportional response.
