Restraint Clause Dispute
The client, a hairdresser, has worked for a company for five years, and the lease for their salon location has ended. They were offered a relocation to a new salon, which they declined due to a conflict of interest involving a family member. The employment contract includes a restraint clause, preventing the client from opening a competing business within a 50 km radius for up to 12 months after employment. The company acknowledged the client's decision and will prepare termination documentation. The client is concerned whether this restraint clause applies, given the salon closure, and how it affects their ability to work within the restricted area.
Questions about this case
These answers have been verified by a lawyer in the LEAP networkCan I work within a 50 km radius even though the salon I was in is closing down?
Whether you can work within a 50 km radius depends on the enforceability of the restraint of trade clause in your employment contract. These clauses are generally enforceable if they are reasonable to protect the employer's legitimate business interests. However, they must not be overly restrictive. The fact that the salon is closing could potentially impact the enforceability, as the employer may not have a legitimate interest to protect in that area. It is advisable to seek legal advice for a detailed assessment of your situation.
What are the potential consequences if I breach the restraint of trade clause?
Breaching the restraint of trade clause can lead to significant legal and financial consequences. Your employer may seek an injunction to prevent you from operating your business, enforcing the restraint through court orders. You could also be liable for damages if your actions result in financial loss to your former employer. The enforceability of restraint clauses depends on their reasonableness in terms of time, area, and protecting legitimate business interests.
Are there any exemptions or circumstances under which the restraint of trade clause might not be enforceable?
Restraint of trade clauses can be unenforceable if they are deemed unreasonable or not necessary to protect legitimate business interests. The closure of the salon and prior notification of non-acceptance may impact the clause's enforceability. Additionally, if the restraint is overly broad in terms of duration, geographic area, or scope, it might be challenged in court. Australian courts look at whether the restraint goes beyond what is required to protect the employer’s interests without unreasonably restricting the employee's ability to earn a livelihood.
How can I negotiate or challenge the restraint of trade clause in my contract?
To negotiate or challenge the restraint of trade clause, consider if the restraint is reasonable in scope, duration, and geographic area. Courts typically assess if the restraint is necessary to protect legitimate business interests. You could argue that since the salon is closing, the employer's business interests may no longer be threatened. It could be beneficial to gather evidence showing how the restraint limits your ability to earn a livelihood, which may render it unenforceable.
If I decline the relocation offer, am I entitled to any redundancy or termination benefits?
You may be entitled to redundancy benefits if your role is genuinely redundant, meaning it is no longer required to be performed by anyone due to operational changes. However, if you decline a reasonable offer of suitable alternative employment, your entitlement to redundancy pay may be affected. It would be advisable to seek legal advice to evaluate your specific situation.
