Restraints of Trade

Employment | Print Article

March 2022

The Employment Relations Authority’s decision ordering Tova O’Brien to comply with her restraint of trade was a high-profile rebuttal of the public perception that a restraint of trade is ‘not worth the paper it’s written on’.

Restraints of trade – which are clauses that prevent an employee from working for their former employer’s competitors or otherwise competing with their former employer – are inherently anti-competitive.

As a matter of legal policy, restraints of trade are unenforceable unless they can be justified as reasonably necessary to protect proprietary interests of the employer.

The employer must prove that the restraint is reasonable. This requires the employer to identify the proprietary interests that are protected by the restraint and satisfy the Authority, or the Court, that the restraint is no wider than is necessary to protect those interests.

Relevant factors include the nature of the employee’s role, the employer’s business, the geographical scope of the restraint, and its duration. Reasonableness is assessed from the point in time when the restraint was agreed.

Despite the starting position (that a restraint is unenforceable unless it can be justified), there are many examples of employers successfully enforcing restraints of trade.

Proprietary Interests

In O’Brien v Discovery NZ Limited, Discovery identified three categories of ‘proprietary interests’ that were protected by its restraint of trade: confidential information, business relationships, and goodwill.

These three ‘proprietary interests’ have been relied on in previous cases to support restraints of trade.

The Courts have recognised that confidential information is a propriety interest and that a restraint of trade may be necessary, in addition to confidentiality obligations, to protect against inadvertent disclosure of confidential information to a new employer.

Similarly, the Courts have recognised the protection of business relationships as a legitimate proprietary interest, especially in industries like recruiting, that operate on established relationships.

The business relationship relied on by Discovery was Ms O’Brien’s relationship with Newshub’s pollster, Reid Polling. The Authority considered that this was a proprietary interest even though Ms O’Brien’s new employer, MediaWorks Radio, did not intend to commission polls.

Goodwill is less commonly relied on to support a restraint of trade, but in Ms O’Brien’s case was justified because her profile position at Discovery contributed to her reputation in the New Zealand market.

No wider than is necessary

The most significant factors when considering the reasonableness of a restraint are usually the duration of the restraint and the geographic scope.

It is unusual for a restraint longer than 12 months to be reasonable. The duration of the restraint must be reasonable in light of the relevant proprietary interest.

In one case where ‘business relationships’ were identified as a proprietary interest,[1] it was ‘arguable’ that a six-month restraint of trade was reasonable because it reflected a reasonable period for the employer to hire a replacement employee, induct and train them, and have them build a working relationship with the employer’s customers.

In another case, which involved Air New Zealand attempting to restrain the former general manager of Air Nelson, Mr Kerr, from undertaking employment with JetStar,[2] the reasonableness of the Mr Kerr’s six-month restraint period was considered while also taking into account the six months of gardening leave provision in Mr Kerr’s employment agreement.

In that case, the Employment Court decided that the six months that Mr Kerr had already spent on gardening leave was sufficient to protect Air New Zealand’s proprietary interests.

Modifying an unreasonable restraint

In O’Brien v Discovery NZ Ltd, the Authority considered that the three-month restraint of trade was longer than necessary to protect Discovery’s legitimate interests.

The Authority exercised its discretion, under section 83 of the Contract and Commercial Law Act 2017, to modify the restraint by reducing it from three months to seven weeks.

The Authority’s power to modify an unreasonable restraint is discretionary; the Authority could have declined to modify the restraint and simply held it was unenforceable.

In competition?

The parties to a restraint of trade might disagree about whether a prospective new employer is ‘in competition’ with the former employer.

In O’Brien v Discovery NZ Ltd, Ms O’Brien argued that MediaWorks Radio and Discovery are not in competition because of the different mediums: TV and radio. Discovery provided expert evidence that Discovery and MediaWorks Radio were competitors in the broad sense because there was a degree of competition between them for ‘ears and eyeballs’ in the breakfast time slot.

In Cherri Global Ltd v Milmine,[3] Mr Milmine successfully argued that his proposed new employer, Berry Farms NZ Ltd, which grows strawberries, raspberries, blackberries and, to a much lesser extent, blueberries, was not in competition with his former employer, Cherri Global Limited, which grows and exports cherries and had very early-stage plans to grow blueberries.


This high-profile case has prompted calls for reform of the law about restraints of trade. It is an uncomfortable fact that a significant proportion of recent cases in the Authority about restraints of trade have involved workers who are not highly paid, such as hairdressers and beauty therapists.


If the Authority or the Court is satisfied that a restraint of trade is reasonable, it will be enforced. Agreements are made to be kept.

As former Chief Judge Colgan said, in a 2011 Employment Court decision,[4]

Gone are the days, if they ever existed, when an employee could confidently sign up to a restraint and then breach it in the bold expectation that “those things are not worth the paper they are written on’


[1] Spirax Sarco Ltd v Hewitt [2021] NZERA 98
[2] Air New Zealand Ltd v Kerr [2013] NZEmpC 153
[3] Cherri Global Ltd v Milmine [2020] NZERA 288
[4] Green v Transpacific Industries Group (NZ) Ltd [2011] NZEmpC 6