Beyond the Clause: Making Sense of Restraints of Trade and Confidential Information

We often think of restraint of trade clauses as dry boilerplate, tacked onto the end of contracts. But make no mistake — they can become the sharp end of litigation when commercial relationships go south. Whether you're advising a business seller, drafting an executive’s employment contract, or navigating a post-departure dispute, it pays to know where the law draws the line between protecting legitimate interests and overreaching control.

In this article, I’ll identify key takeaways from my recent presentation on how the courts approach restraint of trade (RoT) clauses, how these clauses interact with confidential information and intellectual property, and changes to the law on Parliament’s horizon. 

 The Heart of the Matter: What Can Actually Be Protected?

RoTs aren’t just about preventing competition. They’re about protecting what matters. That usually includes:

• Confidential information (e.g. business plans, pricing models, trade secrets)
• Customer connections and goodwill
• Key staff relationships
• Reputation or brand (especially where the employee is the brand)

But the law doesn’t offer blanket protection. As Brereton J once put it: "An employer is not entitled to be protected against mere competition." What courts will protect are legitimate business interests. That’s your starting point — and your north star.

Reasonableness Is King

The question the court always asks: Is the restraint reasonable? That means:

• Reasonable in time (How long is too long?)
• Reasonable in space (Does a Brisbane-based business really need a nationwide ban?)
• Reasonable in context (Is this an executive with deep client ties, or a junior team member?)

Take, for example, the Harden case. A two-year restraint on a senior employee nearing the end of his career was held to be excessive. Similarly, if the information a business is trying to protect is already outdated or leaked into the public domain, courts may not give it much weight.

Drafting Tips: From Boilerplate to Battle-Ready

Here’s where many restraints fall over: vague drafting. If you're relying on “confidential information”, spell it out. Is it the client list in the safe? The formulation for a product? The business strategy?

My rule of thumb: the more specific you are, the stronger your clause becomes. Also:

• Use cascading (ladder) clauses for both time and geography.
• Support the restraint with consideration.
• in a business sale, spell out how much of the purchase price is for goodwill.
• Consider recitals to explain why a restraint is necessary — e.g., "Customers typically remain with the business for three years, therefore the [ NAME OF PARTY] agrees that the restraint of three years is reasonable."

Don’t rely on broad, catch-all language. The courts won’t do your work for you.

 Employment vs. Business Sale: Not All Restraints Are Created Equal

The context matters. Courts are more sympathetic to restraints in business sales — especially where goodwill is being purchased — than they are to those imposed on employees, particularly junior ones. Why? Because vendors and purchasers of business are often of (more or less) equal economic weft and goodwill is inherently worthy of protection. If it were not so protected, one might imagine that the incentive of prospective purchasers to buy businesses (also an important part of the economy) would be diluted.

But the same considerations do not necessarily apply to employees.

Also, some sectors of employment, such as retail, education and hospitality, may not involve employees coming into highly secret information, such as a submarine engineer  working on next-gen nuclear engines. 

So if you’re acting for a purchaser in a sale, this is where you lock things in tight. But if you’re drafting an employment contract, be prepared to justify everything — from duration to scope to the interest being protected.

 A Word on Confidential Information

This deserves its own article — and perhaps I’ll write one soon — but suffice it to say: confidentiality can make or break your claim. Courts will ask:

• Is the information publicly known?
• Was it actually kept secret?
• Is it valuable to competitors?
• Was it hard to develop?

In Plus One v Ching, the court considered whether customer details saved to a former employee’s personal phone counted as confidential. Spoiler: it’s not as clear-cut as you'd think.

The takeaway? If the information matters, treat it like a secret — and document the fact that you did.
Final Thoughts: Restraints Done Right

There’s a delicate balance here. You want to protect your client’s business — but overstepping with an unenforceable clause helps no one. That’s why thoughtful, strategic drafting is critical. Understand the commercial context, identify the true interest at stake, and tailor your restraints accordingly.

And if all else fails? Sometimes, the best answer isn’t found in the courtroom — it’s in the mediation room.

Postscript

The Federal Government, in the quest to boost productivity and wages, announced plans as part of the 2025-26 Federal Budget to ban non-compete clauses for workers who earn less than $175,000 (the high-income threshold prescribed under the Fair Work Act).  This is a developing story – watch this space.