When professional relationships end, employee departures can trigger complex legal disputes. Understanding restraint of trade laws and post-employment obligations is crucial for both employers and employees in NSW’s professional services sector.
The Professional Services Challenge
Professional services businesses – including real estate agencies, accounting firms, and law practices – frequently face disputes when employees leave to join competitors or establish their own ventures. This pattern contrasts sharply with industries like construction or hospitality, which have adapted to more transient workforces.
The key issue isn’t the departure itself, but rather what departing employees can and cannot do once they leave.
During Employment: Clear Boundaries
While you’re employed or contracted, the rules are straightforward. Almost all employment and contractor agreements include provisions prohibiting active competition with or solicitation of the business’s clients, employees, suppliers, or stakeholders. These restrictions are generally enforceable because there’s a community expectation that current employees won’t damage their employer’s business from within.
Post-Employment: Where Disputes Arise
The challenging territory emerges after the employment relationship ends. Two main types of post-employment restraints typically come into play:
Non-Solicitation Restraints
Non-solicitation provisions restrict departing parties from soliciting the business’s:
- Clients and customers
- Suppliers and stakeholders
- Employees and contractors
- Databases and client lists
These restraints often extend to intellectual property and data ownership, creating complex disputes about who owns what information. While the law in this area can be nuanced, the general principle is clear: employees cannot take client lists or customer databases that belong to their former employer, but employers cannot claim ownership over data they don’t actually own.
Restraint of Trade and Non-Competition
Non-competition clauses attempt to restrict departing employees from engaging in similar or competing business activities. However, these provisions often overreach, capturing activities that don’t genuinely compete with the former employer while imposing unreasonable restrictions on someone’s ability to earn an income.
NSW Legal Framework
In NSW, restraint of trade clauses in employment contracts can be challenged in court, which will determine whether the restrictions are reasonable. The law recognises that employers don’t own their employees, and while staff departures may be inconvenient, this shouldn’t justify interfering with someone’s right to work in their chosen field.
Practical Guidance
For Employers
Remember that employees will sometimes leave to work elsewhere. While this may be inconvenient, it doesn’t automatically justify restraining their ability to earn an income in their area of training and qualifications. Focus restraints on genuinely protecting legitimate business interests rather than preventing all competition.
For Departing Employees
Understand that you cannot take data, client lists, or other proprietary information from a business that has provided your livelihood. Respect legitimate business interests while asserting your right to work in your chosen profession.
Finding the Right Balance
The law seeks to balance legitimate business protection with individual employment rights. Courts will consider factors such as the geographic scope, time period, and nature of the restricted activities when determining if restraints are reasonable.
Need Legal Guidance?
Restraint of trade disputes require careful navigation of complex legal principles and NSW-specific legislation. Whether you’re an employer seeking to protect your business interests or an employee facing restrictive post-employment conditions, get proper legal advice before making decisions that could affect your livelihood or business.
Contact Complete Legal today to discuss your employment law concerns with Penrith’s trusted legal team. We’ll help you understand your rights and obligations in plain English, giving you confidence to move forward.
