Restraint of trade vs Non-Solicitation

There's a difference between restraint of trade, non-solicitation and moonlighting clauses in contracts.

(This post is not about whether restraint of trade clauses are ethical, or whether it's ethical to breach them - more about the contractual chess game of business owners vs. employee.)

Planning a side hustle? Your employment contract may view it as moonlighting and try prohibit it.

We’re often approached by both corporate clients, employees and independent contractors to advise on just how strong their restraint of trade clause is, and what employees/contractors can get away with.

Usually, the contract contains only a restraint of trade clause, which the contract drafter thought covered everything. But restraint of trade, non-solicitation and moonlighting clauses are all slightly different.

Restraint of Trade clause:

• prevents employee from taking up the same job with another employer, for a period

• DOES NOT prevent employee from running a side business after hours

• MAY IMPLY prohibition on soliciting your clients – but rather include a separate non-solicitation clause to be safe.

Non-Solicitation clause:

• DOES NOT prevent employee from taking up the same job with another employer

• prohibits employee from soliciting your clients if they start a new business

• DOES NOT prevent employee from running a side business after hours

Moonlighting clause:

• DOES NOT prevent employee from taking up the same job with another employer

• DOES NOT prohibit employee from soliciting your clients if they start a new business

• DOES prevent employee from running a side business after hours

Your decision as to which of these clauses to include in an employment/supplier agreement depends on your industry, business size, and own attitude. Bear in mind that restraint clauses which are too wide are regularly set aside by the courts.

Implement these clauses in both your employment contracts and supplier SLAs before the new person starts, as it is nearly impossible to enforce such agreements on the basis of a common law duty.

Dealing with a restraint of trade battle? Contact us for guidance - we have assisted both businesses and employees enforce their commercial interests.

DISCLAIMER

The above information is for illustrative purposes only and does not take into account your specific circumstances. It therefore cannot constitute legal advice. Please contact us for comprehensive advice to address your circumstances. Under no circumstances should any person use the above information in an attempt to circumvent the provisions of legislation or contract, or to cause damage to any other person. Always ensure you and your company are in compliance with the law in all dealings.

The information is accurate as of the date of publication.