How to Contest an Unjust Employer Restraint Clause

Many New Zealand employees and contractors find themselves signing employment agreements that include a “restraint clause.” These clauses, often tucked away in the fine print, can seem like a standard formality. However, an unjust employer restraint clause has the potential to significantly impact your career freedom and future opportunities once you leave a job. You might be wondering, “What exactly is a restraint clause, and can I really challenge it if it feels unfair?” The answer is yes – understanding your rights and the legal landscape in New Zealand is the first step in successfully contesting an unjust employer restraint clause.

What is a Restraint Clause, Anyway?

Understanding Restraint of Trade

At its core, a restraint clause, also known as a “restraint of trade” clause, is a contractual term designed to prevent you from doing certain things after your employment ends. This usually involves working for a competitor, soliciting your former employer’s clients or employees, or using confidential information. For example, it might state you can’t work for a competing business within a certain geographical area for a specific period (e.g., 6 months within 50km).

From an employer’s perspective, these clauses are intended to protect their legitimate business interests – things like valuable client relationships, trade secrets, confidential information, or the stability of their workforce. However, these protections must be balanced against an individual’s right to earn a living and pursue their career.

When Might a Restraint Clause Be Unjust or Unenforceable?

The Legal Standard in New Zealand

In New Zealand, the law takes a specific approach to restraint of trade clauses: they are generally presumed to be unenforceable because they restrict an individual’s ability to work. For an employer to successfully enforce a restraint clause, they must prove two key things to a court:

1. They have a “legitimate proprietary interest” that needs protecting (e.g., specific confidential information, a unique client base, or a highly specialised skill set gained directly from the employer).
2. The clause is “reasonable” in its scope. This involves looking at the geographic area, the duration, and the type of activity being restrained. It must be no wider than necessary to protect that legitimate interest.

If the clause goes too far, restraining you more than is reasonably necessary, a court will likely find it unenforceable, or at least reduce its scope to what is reasonable.

Common Red Flags

How can you tell if your restraint clause might be unjust? Here are some common indicators:

• Excessive Duration: A restraint for an unreasonably long time (e.g., two years in a fast-moving industry) is often a red flag.
• Too Broad Geography: If the clause restricts you from working across all of New Zealand when your role was localised to a specific city or region, it’s likely too wide.
• Unnecessary Scope: Does it prevent you from doing things that don’t actually compete with your former employer or use their specific confidential information? For instance, restraining you from working in an entirely different sector.
• No Legitimate Interest: If your role didn’t involve access to sensitive information, key client relationships, or unique trade secrets, the employer may struggle to show a legitimate interest to protect.
• Signed Without Understanding: While not always a defence, if you were pressured to sign without a real opportunity to understand the implications, it might be a factor.

Steps to Take if You Believe Your Restraint Clause is Unjust

Gather Your Documents

The first practical step is to collect all relevant paperwork. This includes your employment agreement, any amendments, your job description, and any communications you’ve had with your employer regarding the clause. Detailed records are crucial.

Understand Your Position

Think critically about your role, the information you had access to, and what you plan to do next. How would your new role genuinely compete with your old employer, if at all? The more specific you can be about why the clause is unreasonable in your particular circumstances, the stronger your position.

Seek Professional Legal Advice

This is arguably the most crucial step. Before you resign, before you start a new job that might breach the clause, and certainly before you communicate with your employer about it, get advice from an employment lawyer experienced in New Zealand law. They can assess the enforceability of your specific clause against legal precedents and advise you on the best strategy. They can also help you understand the risks involved.

Potential Negotiation or Challenge

With legal advice in hand, you might choose to:

• Negotiate: Often, with legal backing, you can approach your employer (or have your lawyer do so) to negotiate the terms of the restraint or seek an agreement that it will not be enforced. Many employers prefer to avoid costly legal battles if an agreement can be reached.
• Seek a Declaration: In some cases, if negotiations fail, it might be necessary to seek a declaration from the Employment Relations Authority or the Employment Court that the clause is unenforceable or to have its scope reduced. This is generally a last resort, but an option for truly unjust clauses.

Practical Tips for NZ Employees and Contractors

• Read Before You Sign: Always take the time to read and understand every part of your employment contract, especially restraint clauses, before you sign it. If you don’t understand it, ask for clarification or seek legal advice.
• Don’t Assume Enforceability: Just because a clause is in your contract doesn’t mean it’s legally binding. Many restraint clauses are drafted too broadly and are not enforceable in their original form.
• Keep Records: Maintain a file of all employment-related documents. This will be invaluable if you ever need to challenge a clause.
• Be Proactive, Not Reactive: If you’re considering a new role and you have a restraint clause, address it early. Don’t wait until you’ve accepted a new job offer to discover potential issues.

Restraint clauses are a common feature of employment agreements in New Zealand, but they are far from ironclad. If you’re an NZ employee or contractor wondering about the enforceability of your restraint clause, or if you’re concerned it might unfairly limit your future, don’t leave it to chance. We encourage you to seek expert guidance. Request a restraint clause review today and gain clarity and peace of mind about your career path.