Restraint of Trade Clauses in New Zealand Employment Law
Restraint of trade clauses are terms sometimes included in employment agreements that restrict an employee's activities after their employment ends. These restrictions commonly relate to working for a competitor, setting up a competing business, or soliciting former clients or employees. Such clauses aim to protect an employer's legitimate business interests.
Legal Framework in New Zealand Employment
Employment relationships in New Zealand are primarily governed by the Employment Relations Act 2000 (the Act) [Source: Employment Relations Act 2000, s 3]. All employment agreements must be in writing [Source: Employment Relations Act 2000, s 61(1)]. If a restraint of trade clause is included, it forms part of this written agreement.
Disputes or difficulties arising concerning an employment agreement are categorised as employment relationship problems [Source: Employment Relations Act 2000, s 103(1)(a)]. These problems, including those related to restraint of trade clauses, may be referred to the Employment Relations Authority (ERA) for resolution [Source: Employment Relations Act 2000, s 103]. The Employment Relations Authority (ERA) is an independent body that investigates and resolves employment relationship problems in New Zealand [Source: Employment Relations Act 2000, s 103].
Role of the Employment Relations Authority and Employment Court
The ERA has functions that include determining whether an employment agreement is legally binding and what its terms mean [Source: Employment Relations Act 2000, s 103(1)(b)]. As part of this function, the ERA may determine whether a specific term, such as a restraint of trade clause, is enforceable.
Following an investigation, the Authority or the Employment Court (on appeal) may make various orders. These include compliance orders, which are orders requiring a party to an employment agreement to do or refrain from doing something [Source: Employment Relations Act 2000, s 137].
Criteria for Enforceability
The available legal information does not provide sufficient data on the specific statutory criteria for assessing the enforceability of restraint of trade clauses in the format of 'Legislation Name, Section Number'.
Consequences of Breaching an Enforceable Clause
If a restraint of trade clause is determined to be enforceable by the ERA or Employment Court and a breach has occurred, the Authority or Employment Court may order various remedies [Source: Employment Relations Act 2000, s 123]. Remedies are actions or payments ordered by a court or tribunal to correct a wrong or compensate for a loss [Source: Employment Relations Act 2000, s 123]. These can include:
- Orders for the payment of compensation or damages [Source: Employment Relations Act 2000, s 123(1)(b)].
- Orders requiring a party to perform or stop performing certain actions, which can include an injunction (a court order that compels a party to do or refrain from doing a specific act) [Source: Employment Relations Act 2000, s 123(1)(c)].
Consequences of Unenforceable Clauses
If a restraint of trade clause is found to be unenforceable by the ERA or Employment Court, it will not be binding on the parties involved. The ERA's power to determine what terms of an agreement mean and whether they are legally binding implicitly includes the power to declare a clause unenforceable [Source: Employment Relations Act 2000, s 103(1)(b)].
When to Seek Independent Legal Advice
Understanding the enforceability of restraint of trade clauses involves complex legal analysis, particularly given the reliance on common law principles. Individuals or businesses facing a dispute or seeking to include or challenge such a clause in an employment agreement should seek independent legal advice from a qualified New Zealand lawyer or contact Community Law Centres for free advice. The Employment Relations Authority and the Employment Court can assist with employment relationship problems, and Employment New Zealand provides information for employees and employers.