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Restraints Of Trade To Be Restrained

Published 01 Sep 2023

Employment Relations (Restraint of Trade) Amendment Bill

Labour's Helen White has put a Bill before Parliament to restrict an employer's use of a restraint of trade provision.

This Bill proposes to legislate against employers using restraint of trade provision in employment agreements for employees who earn less than three (3) times the minimum wage. That means an employer can only think about using a restraint of trade for staff earning more than $141,648.00 annually (or $2,724.00 per week), being three (3) times the current adult minimum wage of $22.70 for a 40 hour week.

In addition, the Bill also proposes to limit the application of restraint of trade provision to situations where an employer has a legitimate proprietary interest to protect and to a maximum duration of six (6) months.

The proposed definition under the Bill for a ‘restraint of trade provision’ is also very broad and includes a provision in an employee’s employment agreement that operates after employment ends, which prohibits, or restricts a former employee from any of the following:
  • performing work in a similar field to their former employer’s business (non-compete);
  • contacting or dealing with employees or clients of their former employer’s business (non-solicitation);
  • offering employment to employees of their former employer’s business (non-poaching).
The Bill also proposes to make it a legal requirement that where a restraint of trade applies, then an employer must pay extra ‘reasonable compensation’ to the employee who is subject to associated restrictions. To that end, the Bill proposes that such ‘compensation’ be a separate payment from an employee’s normal salary or wages, and at least half the employees ‘average weekly earnings’ for each week (or part week) that the restraint of trade provision applies.

One potential area of concern outside of the requirement for employers to have to pay employees ‘compensation’ for a restraint of trade provision is that it extends to areas which arguably do not justify or warrant an employer paying for associated restrictions. Namely, the Bill is written to include non-solicitation & non-dealings scenarios in terms of former employees poaching current employees, customers & clients. This will mean that these type of post-employment obligations will not be able to be included in an employment agreement unless:
  • The employer has a legitimate proprietary interest to protect which is specified in the employment agreement; and
  • The employee is paid three (3) times the applicable minimum wage rate; and
  • They are paid separate compensation for each week the restraint of trade applies following the end of their employment.
Another concern would be that for the majority of employees where restraints would not be allowed, there is potentially nothing an employer could do if an outgoing employee started to approach an employer's clients on behalf of the competition.

If the Bill is passed into law, employers will need to think very carefully around how they use restraint of trade provisions, including non-solicitation and non-dealings provisions in their employment agreements. Where employers do so, then they will need to be prepared to pay the employee compensation for the inclusion of the restrictions.

If you have an opinion on the Bill and wish to make a submission you have until 11.59pm on Monday, 18 September 2023 and can do that here: