25 Jul What is a Backdoor Restraint in an Employment Agreement?
A backdoor restraint refers to a restraint of trade clause that is not easily identifiable in an employment agreement.
Employees can easily overlook and miss a backdoor restraint, thereby causing the employee to inadvertently breach it. A breach of a contractual term could have significant consequences for the employee.
Backdoor restraints are equally important for legal representatives to be aware of. Understanding these restraints and how to identify them is crucial for the delivery of informed and accurate employment advice.
What is a backdoor restraint?
An employment agreement will generally include a heading titled either “restrictions”, “restraints”, “non-competition” or “non-solicitation”, which sets out an employee’s obligations with respect to certain conduct both during and after their employment. A backdoor restraint will be located under another heading however. The fact a restraint does not appear under the heading where the rest of the restraints are located is irrelevant. They can still operate as restraints and will carry similar obligations. Backdoor restraints essentially allow employers to insert restraint obligations through the backdoor of another clause in an employment contract.
Backdoor restraints are permissible because drafters do not need to adhere to a specific format for a restraints clause. In New South Wales, the only requirements for a restraint of trade to be valid is for it to not offend public policy (section 4(1) of the Restraints of Trade Act 1976 (NSW)) and not be uncertain. For information on how restraints operate across jurisdictions, please see our article: Drafting and Enforcing Post-Employment Restraints for Cross-Border Employers.
Example backdoor restraint
Confidential information terms generally will include a backdoor restraint. A confidential information clause may include terms to prevent an employee from using or disclosing confidential information. Generally, employers protect information that includes client or supplier lists. This would mean that the confidential information clause operates the same way that a non-solicitation clause would with respect to clients or suppliers. Even if a separate non-solicitation clause is present, the confidential information clause generally will not have a time limit. Therefore, one could argue that the obligation regarding confidential information lasts longer than the non-solicitation.
For more information on restraints of trade generally, please see our article: Restraint of Trade and Post-Employment Restraints.
GENERAL AND CONTACT INFORMATION
The article, the content and references made are intended to keep an audience updated with information. It is not intended that the article or part of it should be relied upon as advice. Information provided may not apply to in all circumstances or in particular situations. If you want particular advice or you have any questions, please contact us on (02) 9189 5905 or at [email protected]