Employment Law in Australia: Restrictive Clauses and Covenants

This report provides a comprehensive overview of Australian employment law, specifically focusing on the legal framework surrounding employment contracts and restrictive covenants. It examines the interplay between various laws, including local, Commonwealth, and common law, and how they shape the employer-employee relationship. The report delves into the nature of restrictive covenants, also known as restraint of trade clauses, and their implications for both employers and employees, particularly after termination of employment. It analyzes the ethical considerations and legal principles governing the enforceability of these clauses, including the concepts of reasonableness and necessity in protecting business interests. The report also explores relevant case law, such as Ross and Anor v ICETV (2010) NSWCA 272 and OAMPS Insurance brokers Ltd v Hanna [2010] NSWCA 781, to illustrate how courts interpret and apply these principles. Furthermore, it discusses ethical theories like deontology, ethical egoism, and utilitarianism in the context of employment law and free trade practices. The report concludes by emphasizing the importance of balancing business protection with employee rights and the need for reasonable limitations within employment contracts. The report also highlights that the employer must prove the necessity and reasonability of such restrictions.

Running Head: PRACTICAL EMPLOYMENT LAW
Practical Employment Law

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In Australian, the Employment Law comprises a Unique combination of many laws
includes local law, the common wealth law and common laws which are deprived from UK as
updated and modified in the court of Australia. The relationship between the employee and
employer is also governed by this complex legislative and regulatory structure which contains
Acts, Rules and industrial devices for example agreements of enterprises and modern awards. A
number of important modifications have been made over the last twenty centuries in regulatory
framework of center and state hence The Australian employment law developed a unique
structure which is totally different from other countries (International Comparative Legal
Guides. 2017). Generally, in Australia under employment law employer at time of making
contract of employment impose some obligations upon their employee by entering the limitation
clause in such contract. These clauses limit the present and ex-employees from taking any action
which may be damage the goodwill of the employer’s business (Chamberlains. 2016).
Generally, all the boundation imposed on the employee’s actions through agreement of the
employment is considered as post a termination restrictive covenant. These restrictive covenants
limit the capacity of an employee to create his own idea of business which is in restrictive
territory or may limit the employee not communicate with the former employer’s possible
clients, and employees (Osborn Law 2015). Such restrictive clauses will be applied on the
employee during the time of employment or at the time when service comes to an end. There is
also theory known as deontology as per this theory every person should comply their duty else
such person can be penalized Thus, the employee may be bound by several clauses included in
their contract of employment which may comprises many expressed and implied responsibilities
and duties The implied duty of the employee is related to loyalty which is known as duty of
good faith in which employee requires to do action in a good faith if an employee takes an

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action which is against the interest of his employer’s business such conduct will be considered as
breach of duty. On the other hand expressed duties mentioned in the contract of the employment
may limit the employee to establish his own business that is in direct competition with
employer’s business at the time of service or at the time of termination.
There is so theory known Ethical Egoism as per this theory if any employee is taken
action which is in favor of business’s interest then it will be considered as ethical. It may be
observed that in the Australia the employers impose restrictive clause on their employees for the
security of their business’s good will at the time when service comes to an end. Imposing
limitation on the employee for the business benefit will considered ethical.
Further It can be said that it will be the duty of an employer to determine that they have
adequate protection in order to protect their private details, intellectual property rights and avoid
such leaving employee who might cause crucial loss to the employer’ s business. The situation
when loss arises where an employee through the private essential details establishes the business
that too direct in the competition with the employer’s business and compel the employer’s client
to do deal with them. For the protection from such damages a contract related restraint of trade
must be made by employer at the time of employment in the employee’s contract International
(Comparative Legal Guides 2017). But on the other hand generally the clause in the contract
related to restraint of trade considered as void and unenforceable in the eye of law unless the
employer proves that such restriction is reasonable and necessary in order to protect the interest
of their company. The employer has no right to use this limitation to protect their business from
process of fair competition in a market and also the obligation to show the necessity and
reasonability of such restriction will be on employer. Necessity and reasonability that is usually
determined as the support system for the lawful restraint contains the private details of the

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employer’s business goodwill and other employee of the business. It must be taken into account
that the employee’s information of private details and business secret is totally different from
general details and the skills with which they work.
According to the Australian court a clause which limits the employee to create his own
business which is in the competition with their employer’s business will be for the duration
between 3 to 12 months (Workwise 2015) Further it is necessary to include restrictive clause in
contract of employment as there be integral security in order to protect the private information of
the employer’s business because in the absence of restrictive law in the contract an employee can
easily misuse the private information for their benefit. Hence if an employer wants to secure their
business then such employer has to create a reasonable limitation in employment of contract thus
it is lawful as well ethical to include restrictive clause in the employment contract to restrict the
employment from taking any action which might be harmful for employer’s business. In order to
determine that particular the reasonability of the limitation clause some factor should be taken
into account the first factor is to determine whether such restriction clause in employment
contract is reasonable that is to see the need of such clause as it is necessary to protect the good
will of business and responsibility to include this impose upon the employer. Thus limitation
clause in the contract is not introduced to defend the employer’s business from healthy
competition from ex-employee (Anderw Jewell. 2017). This permits any ex-employee to use
knowledge in a healthy way for his own business which he learnt in the time period of his
services with his employer. Other important element which can be considered in recognizing a
valid restraint of trade provision contains time period for such restriction, the territory in which
employee may set his business, the possibility of the action being limited, etc. no actual rules that
what is reasonable in limitation clauses is does not exist its depend on cases’ matters.

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Further breaking restriction of trade provision is mainly a breaking of a contract. But if
the court recognized that such provision was not reasonable and there was no need of imposing
such clause on employee then court will considered it unlawful and void and such clause will not
bound the employee. Though, if the court finds that such limitation clause is necessary in order
to protect employer’s business from the damage and its reasonable then such employee can be
set to have committed breach of contract. And will order to give damages in the case of Ross
and Anor v ICETV (2010) NSWCA 272, the court held that the employees were responsible to
breach the limitation clause as such clauses were reasonable and they were ordered to give
compensation to previous employers for the damages. Certain clauses are mentioned in this way
that they offers to employee many options like time period, geographic area and type of the
behavior to be limited these clauses generally mentioned in the cascading restraint clause the
employer get benefit from these clause that the court at the time of decision considered them
reasonable as within the choice to enforce unlike to single limitation clause which usually
considered void and left the employer without protection for their business. In the case of
OAMPS Insurance brokers Ltd v Hanna [2010] NSWCA 781 the court held that such clauses are
lawful if they are reasonably imposed on employees.
Yet another theory utilitarianism which supports free trade practices according to
utilitarian perspective the free trade is greatest policy by which all employers as well as
employee get the benefit in business. This theory provides vast majority advantages to all
people. According to this theory the unrestrictive free trade is a best policy which protects
individuals.

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Further it must be observed that in order to impose the restriction on employee not to
establish the business against the employer’s business should be reasonable and it should be for
the fixed time period after his resignation from such company so employee can established his
own business in order to earn money and does not face the unemployment after the resigning
from such company. Also there should be legitimate cause for such restrain over employees. In
the case Buckley v Tutty [1971] 125 CLR 353 at 380 the court held that Unreasonable restraints
are not enforceable in the eye of law in which the employee is unreasonably prevented from
creating his own business. It is violating to the public welfare.
Epichealth Pty Ltd v Peng-Kung Yang [2015] VSC 516 in this case court held that
limitation clause will not prevent the employee to create the his own business if it’s not
reasonable. A restrictive trade clause will be considered valid it is necessary to protect the
good will of business and reasonable
Hence It can be concluded for the determine the fact weather restrictive employment
agreement is lawful and ethical the law should considered these three ethics of business
deontology which direct the person to comply with their duty so all the employee and employer
should abide by their duty else they can be penalized. Ethical egoism in which any person take
an action for the business interest it can be considered as ethical so imposing the limitation
clause on employee is ethical for benefit of the business and at last utilitarianism which support
the free trade policy by which every person will get benefits in business it the only theory which
does not breach individual rights hence restriction of trade is ethical and lawful but such
limitation should be reasonable and also for the interest of the business.

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Bibliography
Anderw Jewell. 2017. Restraints of Trade: non-compete clauses, are they reasonable?.
https://insightsresources.seek.com.au/restraints-trade-non-compete-clauses-reasonable
Buckley v Tutty [1971] 125 CLR 353 at 380
Chamberlains. 2016. Restraint of trade clause in employment contracts.
http://www.chamberlains.com.au/restraint-of-trade-clauses-in-employment-contracts/
Epichealth Pty Ltd v Peng-Kung Yang [2015] VSC 516
Fare work center. Restraints of trade- A Summary.
http://www.fairworkcentre.com.au/newsblog/Employer-Tips/Restraints-of-Trade---A-Summary/
International Comparative Legal Guides. 2017. Employment &Labour Law 2017.
https://iclg.com/practice-areas/employment-and-labour-law/employment-and-labour-law-
2017/australia
OAMPS Insurance brokers Ltd v Hanna [2010] NSWCA 781
Osborn Law. 2015. Restraint of trade. https://www.google.com.au/url?
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%2Frestraint-of-trade%2F&usg=AFQjCNHrzS9VPkYg-kIz_HIJ540JlOdYgA
Ross and Anor v ICETV (2010) NSWCA 272

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Workwise. 2015. Post Employment Restraint Update.
http://workwiseadvisory.com.au/post-employment-restraint-update/