Employers
Restraint of trade
A restraint of trade clause prevents former employees from working in similar businesses in a way that may affect your business.
When you can include a restraint of trade in an employment agreement
You can include a restraint of trade clause in your employee’s employment agreement if they also agree to it. These clauses are designed to protect a business’ commercially sensitive information by restricting the employee‘s business activities when they finish working for you. They are usually limited to a specific geographical area and only last for a specific period after the end of the employee’s work.
2 main types of restraint of trade clause
The 2 main types of restraint of trade clause are:
- non-competition - where a former employee is prevented from working in a similar field to your business
- non-solicitation - where a former employee is allowed to take another job in the same or similar industry but is restricted from contacting your clients about their new business.
You can find a restraint of trade clause in our Employment agreement builder.
Employment agreement builder - business.govt.nz(external link)
How to protect confidential information
Your employees must act in Good faith means dealing with each other honestly, openly, and without misleading each other. It requires parties to raise issues in a fair and timely manner, treat the other party with respect, and give the other party information which may be referred to in any future discussions.
Make sure your employees know what information is confidential and how to keep it safe.
Some employers add a confidentiality clause to employment agreements to protect their business. This clause should clearly explain what information is considered confidential.
If you include a confidentiality clause, when your employee leaves remind them that the confidentiality clause continues after they’ve stopped working for you. There may be consequences if they use or share confidential information.
Employment agreement builder - business.govt.nz (external link)
Simple steps to protect your intellectual property - business.govt.nz(external link)
What happens if an employee breaches a restraint of trade clause
If an employee breaches a restraint of trade clause or misuses confidential information, you may be able to apply to the Employment Relations Authority or the Employment Court for an injunction restraining the employee from continuing such activities.
You may also be able to ask for damages to cover any loss they may have experienced because of the breach, and penalties for the breach of contract or a breach of the duty of good faith.