Restraints of Trade & Post-employment Obligations – A Quick Guide for N.Z Employers
Post-employment obligations are commonly relied on by employers to protect legitimate business interests when an employment relationship ends. These obligations typically include restraints of trade (non-competition), non-solicitation or no-dealing clauses, and obligations relating to confidential information and intellectual property.
While these contractual mechanisms can be valuable risk-management tools and offer a level of deterrence, they are also one of the most frequently challenged aspects of employment agreements and they are not always enforceable.
The Employment Relations Authority and Employment Court approach post-employment restraints with scrutiny and enforcement is not automatic and often more complicated that first anticipate by employers.
Post-employment Obligations – An Overview
Post-employment obligations are contractual restrictions that apply after an employee’s employment ends. Their purpose is to protect legitimate business interests, such as client relationships, confidential information, and goodwill. Such contractual mechanisms are required to be contained in an employee’s signed employment agreement.
Common post-employment obligations include:
Restraints of trade (non‑competition clauses, which prevent an employee setting up business in competition with the employer for defined periods).
Non‑solicitation clauses (preventing approaches to clients, customers, or staff).
No‑dealing clauses (preventing any dealings with specified clients, even if unsolicited).
Ongoing obligations relating to confidential information and intellectual property.
Unlike obligations during employment, post‑employment restraints are not automatically enforceable. The onus is on the employer to justify them and demonstrate they are genuinely necessary to protect the employer’s legitimate proprietary interests.
Restraints of Trade (Non-competition)
A restraint of trade seeks to prevent a former employee from working in competition with the employer for a defined period and within a defined geographic area.
In New Zealand, restraints of trade are presumed unenforceable unless the employer can show they are reasonable and necessary to protect a legitimate proprietary interest. Accordingly, enforcement action by employer in this context requires careful consideration and approached with caution.
Key factors the Courts consider include:
The nature of the employee’s role and seniority.
The degree of access to confidential information or key client relationships.
The duration of the restraint.
The geographic scope of the restraint.
Whether the restraint goes further than reasonably necessary.
Example: A short restraint (e.g. 3 – 6 months) for a senior employee with significant client influence is more likely to be enforceable than a lengthy restraint applied to a junior or operational role.
Non‑solicitation and Non‑dealing Clauses
Non‑solicitation clauses restrict a former employee from actively approaching or enticing clients, customers, or employees away from the business for a defined period.
Non‑dealing clauses go further, preventing the former employee from having any dealings with specified clients, even if the client initiates contact.
These provisions are often easier to enforce than full restraints of trade because they are more narrowly focused on protecting goodwill and client relationships (as opposed to preventing free market business competition). However, employers must still ensure the scope, duration, and affected client group are reasonable.
Example: A clause preventing a former account manager from soliciting clients they personally managed in the last 6–12 months of employment is more defensible than a blanket prohibition covering all clients of the business that the employee never had contact, or dealings with.
Confidential Information and Intellectual Property
Obligations relating to confidential information and intellectual property often continue indefinitely after employment ends.
Confidential information typically includes:
Client lists and pricing structures.
Trade secrets and proprietary processes.
Strategic plans and commercially sensitive data.
Intellectual property created in the course of employment will usually belong to the employer, provided this is clearly addressed in the employment agreement.
Why Enforcement is Difficult?
Employers often assume post-employment restraints will be upheld because they are written into the employment agreement. In practice, enforcement is fact-specific and uncertain.
Common challenges include:
Restraints being drafted too broadly.
Applying restraints to employees without sufficient seniority or influence.
Inconsistent use of restraints across similar roles.
Lack of evidence of a legitimate proprietary interest.
Courts may refuse enforcement entirely or reduce a restraint to make it reasonable.
Case Law Snapshot – What Decisions Tell Employers
Transpacific Industries Group (NZ) Limited v Harris [2013]NZEmpC 97
Transpacific tried to enforce various restraints of trade against two employees, Mr Harris and Mr Green, which included non-competition, non-dealings, and soliciting employees. The Employment Court was required to consider the enforceability of the non-competition restraint, and whether it was designed to simply prevent competition.
The restraints were for a period of three months and prohibited Mr Green from engaging in competing work in the whole of the North Island. Mr Harris was prohibited from doing the same, but only in the Auckland region. Mr Green was a senior manager and paid accordingly. Whereas Mr Harris was less senior and paid significantly less. Both resigned and began working for a competitor business.
The Court ruled the law does not allow a restraint of trade to prevent employees from competing with a former employer or using their skills, experience and knowledge. The clause itself was poorly drafted and was akin to a confidentiality clause, rather than a non-competition clause. Additionally, by the time the matter reached the Court, the three-month period had already expired. The Court did not consider it appropriate to modify the clause. The restraint was held to be unenforceable and that it could not be use dot simply deny a competitor a valued employee.
Employer Takeaway: This case highlights the importance of careful drafting of restraints of trade that prevent competition, including ensuring that the clause itself is adequately drafted and the periods of applicable are reasonably necessary to protect the legitimate propriety interests of the employer.
Concept Travel Limited v Teixeira [2023] NZERA 47
Concept Travel, a boutique ski travel agency, employed Mr Teixeira as manager and ski consultant under a contract that included:
A six-month non-competition restraint preventing him from working for any business similar to Concept Travel after employment ended; and
A 12-month non-solicitation clause preventing him from soliciting Concept’s customers.
In September 2022, the employee accepted a job with Amped, a direct competitor, and resigned effective 16 December 2022. Concept Travel applied urgently to the Authority for an interim injunction to restrain him from commencing the new role, arguing the restraints protected its goodwill and proprietary interests.
The Authority granted an interim injunction (preliminary enforcement) restraining the employee from working for Amped or any similar business until 1 May 2023, effectively enforcing the six-month non-competition clause in part. It also made a consent order that the employee comply with the 12-month non-solicitation clause until 16 December 2023.
Employer Takeaway: Post-employment restraints can be upheld as interim enforcement where they are clear, reasonable, and tied to legitimate proprietary interests such as customer goodwill. Even specialist market roles (e.g., niche travel agencies) can justify restraints when there is evidence of client relationships and competitive risk.
O’Brien v Discovery NZ Limited [2022] NZERA 15
The Authority considered whether post-employment restraints in a high-profile broadcaster’s contract were enforceable. The employee resigned from her role as political editor with Discovery NZ to take up a media role with another broadcaster. Her former employment agreement contained:
A three-month non-competition restraint (prohibiting work for competitors in any capacity); and
Six-month non-solicitation and no-dealings clauses.
Discovery sought to enforce these provisions to protect its confidential information and business relationships. The Authority held that:
The restraints did protect legitimate proprietary interests (including confidential editorial strategies and business relationships), so a restraint was justified.
However, the duration of the restraints was broader than reasonably necessary. As a result, the Authority reduced the three-month non-compete to about seven weeks (to reflect the practical need for protection) and reduced the non-solicitation/no-dealings periods to three months.
The Authority also ordered the employee to pay a $2,000 penalty for breach of the employment agreement’s conflict of interest clause in respect of promotional activity she performed while she was still employed.
Employer Takeaway: Employers can enforce post-employment restraints when there is a legitimate proprietary interest to protect, but the Courts and Authority will carefully assess whether the duration and breadth of the restraints are reasonable and proportionate. Overly broad restraints, even if agreed, may be modified to what is necessary.
Practical Steps for Employers
To improve the enforceability of post-employment obligations, employers should:
Tailor restraints to the specific role and risk profile.
Limit duration and geographic scope to what is genuinely necessary.
Use non-solicitation or no-dealing clauses instead of broad restraints where possible.
Clearly define confidential information and protect it during employment.
Regularly review restraints as roles evolve.
Common Employer Pitfalls
Using standardised restraints across all roles.
Imposing lengthy restraints without justification.
Failing to update restraints when an employee is promoted.
Relying on restraints instead of strong client relationship management.
Compliance Warning
Post-employment restraints are not automatically enforceable in New Zealand. Employers must be able to demonstrate that any restriction is reasonable, proportionate, and necessary to protect a legitimate business interest.
Poorly drafted or unjustified restraints may be struck down, leaving employers without effective protection at the point of exit. Employers should regularly review post-employment obligations and seek professional advice where there is uncertainty.
This article is provided for general information only and does not replace professional advice. Employers should seek advice specific to their circumstances from Employer Pro if in doubt on their matters pertaining to post-employment obligations, including enforcement measures and options. Employer Pro has a range of employer focused resources and services available through our competitive Employer Protection Packages.
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