Customer connections are vital to the success of a business. All employers have a legitimate interest to maintain and protect their confidential information and customer relationships.
The fragility of an employer’s client base is often revealed when a key employee departs the business. It is not unusual for clients to follow the departed employee to their new venture (often a competitor). This can cause a significant economic loss to the former employer.
Protecting customer connections
One way that a business can protect its customer base is by ensuring that the contract of employment contains a well drafted post-employment restraint of trade. At a minimum, a ‘non-solicitation’ clause is essential to a contract of employment where the employee interacts with customers.
The purpose of a non-solicitation clause is to ensure that when an employee leaves, the business has a fair opportunity to transition the customer connection to another staff member. A valid non-solicitation clause would prevent a departing employee from immediately soliciting or accepting work from an existing client of the employer for a ‘reasonable’ period.
What constitutes ‘solicitation’?
In Entello Pty Ltd v Firooztash [2016] QDC 050, the Queensland District Court clarified that ‘solicitation’ involves a former employee:
- Conveying a message to a client of their former employer that they would be willing to deal or do business with the client; and
- Encouraging the client to deal or do business with them.
The Court granted an injunction against a financial advisor who had breached a restraint of trade clause by soliciting his employer’s former clients. Employers should consider which particular employees are likely to develop relationships of ‘trust and confidence’ with clients and use non-solicitation clauses to restrain the conduct of those employees should they choose to leave the business.
What makes a non-solicitation clause enforceable?
Non-solicitation clauses must be drafted carefully because the Courts will only enforce a restraint clause where it is necessary to protect the legitimate business interests of the employer.
In Steadfast IRS Pty Limited v Latchmi Mesuria [2020] NSWSC 947 (Steadfast), the Supreme Court of New South Wales provided some important guidance on the type of factors that are relevant to determine if a non-solicitation clause in a contract of employment is valid and enforceable.
Protecting the legitimate business interests of your organisation
The starting position in New South Wales is that a restraint of trade clause is enforceable to the extent that is not contrary to public policy. This is a statutory legal position that has been created by the Restraint of Trade Act 1976 (NSW). This means that a restraint of trade clause is only enforceable to the extent that it protects the legitimate business interests of the organisation, such as protecting an employer’s client connections. A restraint of trade will not be enforceable if its intent is to stifle competition, or unreasonably restrict the employee from pursuing their career.
Note that no other Australian states and territories have equivalent legislation to the Restraints of Trade Act 1976 (NSW). This means that in other jurisdictions, if a court determines the clause is unreasonable, it may be deemed entirely invalid, unless it is a cascading clause. Courts in those jurisdictions generally do not have the power to rewrite the clause to make it reasonable.
Factors that prove there is a ‘legitimate business interest’
There are certain factors that indicate the employer has a legitimate business interest, and therefore an enforceable restraint of trade clause. In Steadfast the Court held that a 12 month non-solicitation clause against a senior employee was necessary to protect the legitimate business interests of the company.
The following factors were considered:
- The employee’s role was fundamentally focused on fostering client relationships and selling the employer’s products to clients. Accordingly, the employee was seen as the ‘human face’ of the employer.
- The former employer was not enforcing a ‘non-compete’ restraint – it only sought to enforce the non-solicitation clause, demonstrating it was only concerned with protecting its client base.
- The employee voluntarily agreed to the non-solicitation clause and acknowledged that the clause was reasonable.
- As a senior employee, the employee was intimately aware of the needs of the client and was required to build trust with those clients over many years.
- The employee was a ‘high performer’ and had a good reputation in the industry, meaning some clients might hold a ‘sense of loyalty’ and approach the employee in their new venture.
- The industry was characterised by contracts generally renewed every 12 months.
- There was evidence that the employee had already breached the non-solicitation clause.
Considering the above, the Court held that a 12 month non-solicitation restraint was valid, reasonable and enforceable.
Three golden rules for drafting enforceable restraints
In Just Group Ltd v Peck [2016] VSC 614, the Supreme Court of Victoria found a restraint of trade clause in a senior executive’s contract was void because it was unreasonably broad. The case provides three key lessons for employers:
1. Be wary of standard cascading restraint clauses
A standard ‘cascading’ clause that provides varying restraint periods (e.g. 12, 6 or 3 months) across varying geographical areas is not enough by itself. The clause must also identify the specific activities being restrained, and these should be tailored to the particular role. A restraint clause that attempts to cover every employee in the business is likely to be found unreasonably broad in its application to a particular employee.
2. Keep the reason for the restraint in mind
Most restraint of trade clauses aim to prevent the misuse of confidential information and ‘know-how’. The restraint should therefore apply only to future employers or activities that could benefit from such confidential information, rather than preventing employment in the industry more broadly.
3. Restraints are tested against the contract, not the employee’s actions
The enforceability of a restraint is assessed by reference to the meaning of the words used in the employment contract, not by what the parties have actually done or intend to do. If the wording of the clause could apply to roles or activities that the restraint was not intended to cover, the clause may be found unenforceable – even if the employer would never invoke it in those circumstances.
Key takeaways
Staff turnover is normal, but employers should take steps to manage the real risk that a senior employee may take customers with them. This risk can be mitigated through ensuring that the contract of employment, at the very least, contains a well drafted non-solicitation clause.
Contact JFM Law on 1300 882 386 or email us if you have any queries about enforcing a restraint of trade, or if you want to update your employment contracts to include one.
The information contained in this post is current at the date of editing – 22 April 2026.