Many Employers have a Restraint of Trade provision within their Employment Agreements, with the view that this clause has some power to restriction an Employee if they were to leave the company.
However, the key issue that we regularly come across is that for the majority, these provisions are written as a standard ‘blanket’ clause, meaning that it is identical within all Individual Employment Agreements. Therefore, in many cases, a Senior Manager, Sales Representative, Manual Labourer or Office Assistant will all have an identical Restraint of Trade provision whether relevant to the level of their position within the company or not. Unfortunately for many Employers, when applied, the provision does not provide the cover, they thought it did.
If the company believes they have a genuine reason to consider implementing restrictions on an Employee, either while employed or after their employment has ended, there will need to be a more specifically written provision for the Employee.
When faced with enforcing a standard ‘blanket’ Restraint of Trade provision, The Employment Authority and Employment Court have been less lenient with cases seeking enforcement either being dismissed or the period of time the restraint is in place for, being significantly reduced.
Due to the controversial nature of restraints, a Private Members Bill was introduced to Parliament in September 2022 that would impact on when a Restraint of Trade can be implemented or enforced within an employment situation, if this subsequently becomes law.
The core elements of the proposed Bill are:
- A Restraint of Trade would have no effect where an Employee earns less than three (3) times the minimum wage, with this being approximately $140,000.00 per annum.
- The Employer would be required to pay the Employee reasonable compensation by the way of an additional 50% of their weekly earnings for the period that the Restraint of Trade remains in effect.
- It would limit the use of a Restraint of Trade to no more than six (6) months.
The bill is not required because recent case law demonstrates that a well written provision can be legally enforceable under the current framework. In a recent high-profile case between TV3’s Political Editor, Tova O’Brien and TV3’s owner, Discovery NZ, where the Restraint of Trade was enforceable and prevented Tova from working for a competitor for a period of time following the ending of her employment with TV3.
Ultimately, these Restraint of Trade provisions are there to protect a company’s propriety interests and therefore are beneficial and effective when they have been specifically written and implemented in the correct way. The part that appears to have been overlooked in the members bill is that the need to consider restraints should have no bearing on the salaries of individuals and should be purely related to the proprietary interests that the Employer is seeking to protect. Therefore, this could realistically relate to people working in various levels within the company.
We have extensive expertise in drafting specific undertakings that cover the full restraint provisions with this having been proven to be legal, and enforceable, in the past.
If you have any current concerns in relation to a Restraint of Trade provision or if you would like to put a specific provision in place, please feel free to contact us on 078380018 and we will be more than happy to guide and support you through the process with any advice or documentation that you require.