24 November 2025

Restraint of trade provisions in the building and construction industry

Robert Kalde

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What are restraints of trade?

Restraint of trade clauses are contractual provisions designed to limit a party’s activities beyond the scope of their agreement. Restraint of trade provisions are commonly used within the building and construction industry to protect the commercial interests of a party. They can be included in employment contracts, particularly for key personnel such as project managers and senior site staff, as well as in subcontractor agreements, business sale contracts and other agreements where one party seeks to limit the exposure of the other party both during the relationship or when the agreement comes to an end (such as a Joint Venture).

The primary purpose of restraint clauses, (as the name suggests), is to safeguard a business’s competitive edge, protect client relationships, proprietary construction methods and trade secrets, confidential pricing and tendering strategies, and the stability of the workforce by preventing the poaching of staff or clients.

Restraint clauses come in various forms:

Non-compete clauses prohibiting a party from working with or establishing a competing business

Non-solicitation clauses restricting contact with former clients, staff, or suppliers

Confidentiality clauses ensuring sensitive information remains protected

Geographic and time-based restraints to prevent a party from operating within a certain radius of a place of business for a reasonable period of time.

An example of a common restraint of trade provision involves a developer contracting a builder to design and construct house-and-land packages. The builder is introduced to hundreds of potential homeowners. To protect its interests, the developer includes a clause preventing the builder from entering contracts directly with those homeowners.

Another example is a joint venture between a developer and builder, where the joint venture agreement stipulates the roles and responsibilities of each party to design and build the development. If either party terminates the agreement, the other would seek to restrain a fresh builder or developer from taking over the project. Usually, the party with the most leverage at time of contracting would successfully incorporate the restraints.

Legal framework in NSW

Under the Restraint of Trade Act 1976 (NSW), restraint clauses in contracts are generally presumed to be valid unless they are found to contravene public policy. However, for such clauses to be enforceable, they must be reasonable in their scope – this includes considerations of time, geography, and the nature of the restricted activity. Courts in New South Wales have the authority to “read down” clauses that are overly broad, effectively narrowing their application to ensure fairness and legality. If a party breaches a valid restraint clause, legal remedies such as injunctions or damages may be pursued by the affected party.

2025 budget reform proposals

To address growing concerns around job mobility and wage suppression, the Federal Government has proposed a series of reforms targeting restraint of trade practices. Central to these reforms is a plan to ban non-compete clauses for employees earning less than $175,000 per annum, with the threshold indexed annually.

The government also intends to crack down on wage-fixing and no-poach agreements, which have been criticized for limiting fair competition and employee movement. In addition, consultations are underway to explore extending these reforms to high-income earners and other types of restraint clauses. The proposed legislation is expected to take effect from 2027, marking a significant shift in how employment contracts may be structured in the future.

Enforceability: what courts consider

For a restraint clause to be enforceable, it must serve a legitimate business purpose such as protecting client relationships, confidential information, or proprietary methods and be reasonable in its scope. This includes limitations on time (with courts generally favouring durations of 6 to 12 months), geography which is aligned with the actual reach of the business, and the nature of the restricted activity (ensuring it does not unfairly prevent someone from earning a living).

Recent case law illustrates how courts generally assess the reasonability of these provisions. In McMurchy v Employsure [2022] NSWCA 201, the NSW Court of Appeal upheld a non-compete clause due to the employee’s misconduct during the notice period, demonstrating that context and behaviour can influence enforceability. Conversely, in Shire Real Estate Pty Limited v Kersten [2021] NSWSC 1255 the NSW Supreme Court declined to enforce a restraint against an employee who had been made redundant after a short tenure, finding the clause unjustified.

In the context of business sales, courts have traditionally been more lenient. However, 2nd Chapter Pty Ltd & Ors v Sealey & Ors (No 2) [2024] VSC 672 marked a shift. The Victorian Supreme Court refused to enforce broad restraint clauses that applied to all clients of the business, not just those connected to the restrained employees. The court also found the five-year duration unreasonable and declined to “read down” the clause, rendering it unenforceable. This case underscores the importance of drafting restraint clauses that are specific, proportionate, and tailored to the party’s role and equity stake.

Key considerations for businesses

When drafting or reviewing contracts, businesses should approach restraint of trade clauses with care and precision. Overly broad or generic clauses which are often copied from templates can be unenforceable and may expose the business to unnecessary legal risk. Instead, restraint provisions should be tailored to reflect the specific role of the individual, the nature of the business, and the commercial risks involved.

It is also essential to seek legal advice both before entering into a contract and when exiting one, to ensure compliance and mitigate potential disputes. Additionally, businesses should exercise caution when engaging with former clients or staff after a contract ends, particularly if restraint clauses are in place, as even inadvertent contact could trigger enforcement action.