Non-compete clauses. Restraints of trade. Whatever you call them, they’re a staple in employment contracts, particularly in recruitment. But how enforceable are they? And with new laws on the horizon, are they even worth the paper they’re written on? Let’s break it down.
Annoying but necessary disclaimer – this is not legal advice so please seek your own if this is an issue you are currently trying to solve. Alrighty, now that’s out of the way..
What is a Restraint of Trade Clause?
A restraint of trade clause is designed to stop an ex-employee from doing something that could harm their former employer’s business. That could mean preventing them from joining a competitor, starting their own business in the same space, or even poaching clients and colleagues. These clauses usually fall into four main categories:
- Non-compete clauses – Stop an ex-employee from working with a competitor or launching a similar business for a set period in a specific location.
- Non-solicitation clauses – Prevent them from approaching former clients or customers.
- Non-poaching clauses – Stop them from recruiting former colleagues.
- Confidentiality clauses – Keep company secrets, well, secret.
Employers argue these clauses protect their business. Employees argue they restrict career freedom. And the law? Well, it seems to sit somewhere in the middle.
Are These Clauses Enforceable?
In Australia, a restraint of trade clause is only enforceable if it’s reasonable. What does that mean? Courts look at factors like:
- Timeframe: A 12-month restriction might hold up in court. Anything longer is pushing it (some would argue longer than 3 months is pushing it).
- Geographic scope: Preventing someone from working in Sydney might be reasonable. Blocking them from working anywhere in Australia? Probably not.
- Business interest: Employers need to prove the clause is protecting something legitimate, like trade secrets or client relationships.
In NSW, there’s even a specific law – the Restraints of Trade Act 1976 – that allows courts to tweak overly broad clauses rather than scrapping them entirely. That means if your contract says you can’t work in recruitment for five years, the court might reduce it to something more reasonable instead of throwing it out completely.
Big Changes Coming in 2027
If you earn under $175,000 per year, soon you won’t have to worry about non-compete clauses at all. The federal government has announced a ban on these clauses for lower and middle-income earners starting in 2027. The goal? To improve job mobility, increase wages, and make it easier for people to move between roles.
This change is expected to impact millions of workers across industries like childcare, construction, and yes, recruitment. The government estimates it could pump an extra $5 billion into the economy and put an extra $2,500 in the pockets of affected employees each year.
What This Means for Recruiters
If you’re running an agency, this means you’ll need to rethink how you retain top talent. Non-compete clauses won’t be the safety net they once were. Instead, your focus needs to shift to creating an environment where recruiters want to stay – through strong culture, career growth opportunities, and competitive pay.
If you’re a recruiter bound by one of these clauses, now’s the time to assess whether it’s actually enforceable. And if you’re considering a move, it’s worth getting legal advice before making any big decisions.
If you’re a recruiter currently considering a role where there is a long non-compete clause, ask some questions around. Not because you’d be leaving anytime soon, but you need to understand where the new employer is coming from.
In my experience and from speaking to other recruiters, most agencies these days have tiered non-competes based on seniority, 3-6 month for Junior – Senior level Recruiters, 6-12 for Associate / Director level. OR they base their non-competes on client placements; i.e. if we have placed with this client in the last 6 months, you cannot approach them to after that time which is in my opinion more reasonable as it doesn’t restrict the entire market.
At the End of the Day
Restraint of trade clauses aren’t as bulletproof as some employers think. They need to be reasonable, necessary and backed by a legitimate business interest. And with upcoming law changes, their relevance is about to take a major hit.
So whether you’re an employer or an employee, the key takeaway is this – don’t assume a contract is set in stone. Know your rights, understand the law, and if in doubt, get legal advice before making your next move.
I am not a lawyer (obviously) so please take all this with a grain of salt. If you have any specific questions in this space, please consult a lawyer!
