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Post termination restraint


5 November 2023

When an employee or contractor is engaged with your business, they should sign a complete and robust employment or contractor agreements (agreements). Agreements cover all the elements of a person’s engagement with your business both during and after termination.

Many restrictions remain forever, even after the person leaves your business such as confidentiality and how intellectual property can be used. Some restrictions are in place for a finite period of time and/or in a specific area. This is the area and period of restraint.

What you wish to restrain the person from doing will vary, depending on your business and their role in your business. If someone holds a senior role and has access to a lot of internal information such as strategy documents, you would want a higher restraint period and area.

Restraint can cover many areas, for example preventing someone from:

  • soliciting clients, customer or employees
  • engaging in work for a competing business
  • Interfering in relationships with clients, employees or suppliers

Restraint periods and areas must be reasonable. You can’t prevent someone from earning a living and moving on but you can take reasonable steps to protect your business, your client relationships and your intellectual property.

Often a restraint period and area will be detailed in a cascading format, this means that if one level does not apply, the next level down will. For example, if the restraint period is 12 months in Australia and this is not reasonable, then the next level down, 9 months in NSW might apply.

There may be a need for some negotiation depending on where a person might be going to and the role they will be doing. The most important things to remember are the offer needs to be reasonable and based on the information within the employment agreement.

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