‘Restraint of Trade’ clauses and employers’ protection
Restraint of trade provisions permit employers to save their legal proprietary interests after the employment relationship has ended. They constitute customer and supplier relationships and trade secrets. The main restraint clauses stop employees from working for a competitor or trying to entice suppliers/customers or other employees away from their employer. However, they must be reasonable, or they will illegally stifle competition, which is generally where debate arises.
With current pandemic, making market conditions tight, employers aim to save their businesses from competition. They want to make sure that confidential data is not misused, and that employees don’t breach restraint of trade duties by soliciting their customers, suppliers or other employees. Businesses shifting to working from house arrangements face high risk that employees may expose confidential data to parties outside the employer’s work.
Confidential information protection and trade restriction
A restraint of trade or a breach of confidentiality can be incredibly damaging to a company’s goodwill and client relationships. Also, if a business experiences a data breach, it could damage the trust of its existing clients and its reputation could be lose. These effects can result in an immediate and dramatic impact on the employer’s bottom line, which can sometime be so severe it can lead to the employer’s downfall.
In the case of Tradies Ladies Ltd v McKay  NZERA 651, two courier drivers breached the non-competition and non-solicitation terms in their employment contracts. They set their business in competition and soliciting key clients. Tradies Ladies said that these acts led to decline in company sales by $22,000 and that the company was considering making two employees redundant after that. While Tradies Ladies suffered a considerable reduction in income, it was able to get interim restraining orders to prevent further loss.
Protection of information terms
Drafting is key factor to making sure a restraint of trade term is enforceable (and that consideration is given by the employer for the employee’s contract). It must only go so far as is reasonably necessary to save the employer’s legitimate proprietary interests, both in geographical and time coverage. While there is an implied duty of confidentiality in all employment agreements, this narrows considerably on termination, so it is vital to define the specific confidential information that the employer wants protected.
What can trip people up or slow down the process in enforcing the law?
The key is to act promptly, as the period of the restraints will be running and the damage may have already started. The ex-employee and their new employer will want to slow down the process and will be declined to give any information that may help. Being alive to this and not letting the process drift is necessary. Also getting evidence of the breaches can take time, so often employers will require proceeding anyway. Prolonging time to do so will hold the employer in good stead to force the ex-employee to comply or if proceedings are filed.