Restraint of Trade (ROT) – Are they enforceable
General, Employment Law, Agreements / 17 February 2022
In a nutshell, restraints are enforceable to the extent that they allow the employer to secure its interests after an employee’s departure and generally used for senior roles. The law recognises that consumers have freedom of choice, and that employees must be allowed to make a living, so limits to this must be kept to a minimum, and are only allowed so far as is reasonable to protect employers’ proprietary interests.
ROTs are a hot topic right now in light of Tova O’Brien’s well publicised litigation with Discovery NZ who she sought to leave to take up a similar position with Media Works NZ.
O’Brien’s ROT restrained her from working for a competing business anywhere in New Zealand for a period of three months. O’Brien argued that her new role as a radio show host captured a substantively different audience to her work as a political editor and therefore would not be in ‘competition’ for the purposes of her ROT. This was rejected, with the restraint period of three months being reduced to seven weeks, but otherwise upheld as Discovery NZ proved it had a propriety interest to protect.
Message for Employers
This case highlights the practical issues with enforcing these types of provisions for both employer and employee, leaving O’Brien, for the moment, unable to commence her new role.
ROTs should be well drafted to ensure best prospects of enforcement, including consideration of the following:
- The location of the employee – is a regional restraint reasonable or could you limit this to a specific town or radius i.e. 10km radius from the business site
- How long has the employee been employed for? If only a short length of time, a long ROT may not be reasonable
- Does the person have interests that are capable of being protected?
- Has the employee been paid extra in recognition that they will be restrained when they leave?
For advice on protecting your business against employee departures, our team can help.
Disclaimer: We remind you that while this article provides commentary on employment law, health and safety and immigration topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.