Restraint of trade clauses: what they can and cannot stop you doing

What a restraint of trade clause is, and the kinds you will see

A restraint is a promise in your employment agreement that applies after your employment ends. Employment New Zealand describes two main types. A non-competition clause stops you working in a similar field or for a competitor. A non-solicitation clause lets you take a job in the same industry but stops you contacting your old employer's clients for business. Some agreements also stop you dealing with clients you worked with, or hiring your former colleagues.

Restraints usually name an area and a period, such as six months within a region. A restraint only binds you if you agreed to it. Separately, you must keep your employer's trade secrets and highly confidential information private during and after your employment, even if there is no clause saying so.

When a court will enforce one

The Employment Relations Act 2000 has no rules of its own for restraints; they are decided under the general law on restraint of trade. The Employment Relations Authority has described the test this way: a restraint is enforceable only to the extent that it protects a legitimate proprietary interest (a genuine business interest, such as client relationships or confidential information) and is of a reasonable nature and duration. In a 2024 decision it said reasonableness is judged as at the time the employment agreement was entered into, not when you leave.

In a 2023 decision about a recruitment firm, the Authority found the firm had not shown that a nine-month restraint was necessary. It held that the part stopping the worker from doing business with clients and candidates he had dealt with could reasonably be enforced for up to six months. That is one case on its facts, not a rule. Under the Contract and Commercial Law Act 2017, a court can delete an unreasonable restraint, modify it to what would have been reasonable when the agreement was made, or decline to enforce it, and the Authority can make the same orders.

If a restraint is enforceable and you breach it, Employment New Zealand says your former employer may seek an injunction to stop you, damages for its loss, and penalties.

The law has not changed this year. A member's bill, the Employment Relations (Restraint of Trade) Amendment Bill, would ban restraints for people earning under three times the minimum wage, require payment for them above that level, and cap them at six months. When the Education and Workforce Committee reported back on it on 24 May 2024, a majority recommended that it not proceed. As at 28 September 2026 it has had no second reading, so it is not law. The Employment Relations Amendment Act 2026 did not touch restraints.

Reading one before you sign, and asking for it to change

When you are offered an individual agreement, your employer must give you a copy, tell you that you can get independent advice, give you a reasonable chance to get it, and consider and respond to any issues you raise. That is the time to raise a restraint. Check what activity is restricted, which clients it covers, the area, how long it lasts and when it starts. Our guide to job offers and employment agreements covers the rest of the agreement.

A restraint that is wider than the job needs can often be narrowed simply by asking:

If an employer pays you to accept a restraint, the payment is taxable: Inland Revenue lists payments for accepting restrictive covenants among the lump sums PAYE is deducted from.

Leaving a job with a restraint in your agreement

Read the clause before you accept a new offer, not after you resign. Tell your prospective employer about it, because it may affect the role they offer you. If you are unsure whether it applies, you can ask your current employer in writing to confirm that it will not rely on the restraint for your new role, or to release you from it. Our article on how to resign covers the letter and the notice period.

Garden leave affects the timing. Employment New Zealand says a restraint takes effect after any garden leave ends, and the garden leave may count when deciding whether the restraint is reasonable. Whatever the restraint says, leave client lists and confidential files behind.

With On the Move, your employment agreement can be kept in Documents against the job it belongs to, so the clause is there when you need to read it again.

Getting advice before you act

Whether a particular restraint would hold up depends on your role, what you had access to and the new job, so general rules only go so far. Before you sign an agreement with a broad restraint, or accept a job that might breach one, get advice from Employment New Zealand (0800 20 90 20), Community Law, your union or an employment lawyer. The demo, which needs no account, shows a current job with its notice period, key dates and files kept alongside it.

Keep the agreement with the job