The Differences Between Non-Compete and Non-Solicitation Clauses

In Australia, it is common for employment contracts to include restrictive provisions which operate to protect the employer’s interests. Two of the most common restrictive covenants are non-compete and non-solicitation clauses. In light of the Albanese government’s recent announcement to ban non-compete clauses for certain workers, understanding the distinctions between these clauses is crucial.

What is a non-compete clauses?

A non-compete clause will operate to restrict an employee from partaking in activities that compete with their former employer, such as working for a competitor or starting a competing business.  The clause will typically prohibit the former employer from engaging in competitive behaviour for a specific duration of time and within a specific geographic area.

The key purpose of this type of clause is to prevent former employees from leveraging proprietary knowledge and client relationships acquired throughout their employment to the detriment of their former employer. Employers justify these clauses as a means to protect confidential information and trade secrets that employees may have incurred in their tenure.

However, non-compete clauses are often scrutinised by the courts as they can unnecessarily impede on an individual’s capacity to work in their field of expertise. Therefore, the enforceability of a non-compete clause is contingent upon its reasonableness in protecting legitimate business interests without impeding on an individuals’ capacity to seek alternate employment opportunities once their employment has ended.

What is a non-solicitation clause?

Non-solicitation clauses operate to prevent a former employee from actively soliciting or enticing customers, clients, or other employees away from their former employer. Unlike non-compete clauses, these provisions restrict an individual from contacting former clients or staff for a certain amount of time, in order to protect the employer’s relationships and business interests. Generally, the courts view non-solicitation clauses more favourably as they do not impose harsh restrictions that affect an individuals’ ability to accept an employment opportunity and, rather, they focus on protecting an employer’s genuine business interests.

What does this mean for businesses and employees?

In Australia, the enforceability of non-compete and non-solicitation clauses varies depending on their reasonableness in protecting genuine business interests.

The ability to distinguish between these two clauses in vital for both employers and employees to ensure compliance with employment laws and to protect their respective interests. It is important for employees to understand their contractual obligations to avoid potential legal disputes and, further, it is important for businesses to equip themselves to adequately protect their client relationships and proprietary information.

With the Albanese government banning non-compete clauses, it is more important than even to have well-drafted and enforceable non-solicitation clauses to safeguard your client relationships and talent.

Our solicitors at BlackBay Lawyers are highly skilled in commercial and employment law and have extensive experience in drafting non-compete and non-solicitation clauses, together with employment contracts.

If you are entering an employment contract as an employee or an employer, or wish to seek advice surrounding the operation of any non-compete or non-solicitation clauses, please feel free to contact BlackBay Lawyers on (02) 8005 3077  for a confidential discussion with one of our solicitors.

The content in this Article is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. It should not be relied upon as such. You should seek legal or other professional advice before acting or relying on any of the content.

---

ABOUT THE AUTHOR

Katie O'Brien is an enthusiastic and driven member of our team. With a genuine focus on understanding each client’s unique needs, she uses her legal expertise to craft tailored strategies that deliver exceptional results.

Katie focuses on assisting clients in areas of defamation, social media, creative industries, employment law, and commercial litigation. Holding a Bachelor of Laws and a Bachelor of Media (Public Relations and Social Media) from Macquarie University, Katie applies her legal knowledge and strong understand of the digital world to expertly navigate the unique challenges arising in these sectors.