Restraints of Trade

are they worth the paper they’re written on?

Restraints of Trade (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.

In our extremely tight labour market, protecting your interests by securing key employees is more important than ever. Many employees will sign up to ROTs, assuming they’re not worth the paper they’re written on. And, that is true for poorly draft ROTs, but if you get this key business protection tool right when an employee starts with you, you’ll have a lot more options for enforcement on departure if it comes to that.

In a nutshell, restraints are generally only enforceable for senior or specialised key roles, and to the extent that they allow you to secure your interests after an employee’s departure. For example, time to contact clients and let them know how they’ll be well taken care of after the key person leaves, maybe by introducing them to their replacement. Strict limitations apply to enforcement because the law recognises that consumers have freedom of choice, and that employees must be allowed to make a living.

Case summary

In O’Brien’s case, her 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.

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.

Message for Employers

ROTs should be well drafted to ensure best prospects of enforcement, including consideration of practically what it is you are seeking to protect, and taking into account the possible worst-case scenario of competition by the employee.

For example:

• The location of the employee – is a regional restraint reasonable or could you limit this to a specific town or radius? eg. 10km radius from the business site. • What is special about the employee’s role that needs protection? eg. do they hold key relationships or trade secrets? Be specific about this. • Is the employee starting a new job, needing a new or different restraint? If so this should be considered in the employment agreement offered to them. • How long has the employee been employed for? If only a short length of time, a long restraint period will likely not be reasonable.

• Has the employee been paid for the restraint you seek? • Is a non-competition restraint needed, or will a nonsolicitation restraint suffice?

For advice on protecting your business against employee departures, the team at Copeland Ashcroft Workplace Lawyers can help – give us a call on 0800 354 821 for a free 15-minute consultation. You can also find a raft of resources on our website at www.coplandashcroft.co.nz, from articles on legal updates to e-resources covering a range of workplace law topics.

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.

Kate Ashcroft, Partner, of Copeland Ashcroft Workplace Lawyers. Copeland Ashcroft Workplace Lawyers operate the NZCB Employment helpline and providing specialist advice, representation and support across employment, immigration and health and safety law, to businesses throughout New Zealand. Why us? We know what works, and partner with you to achieve the results you want. www.copelandashcroft.co.nz