The Employment Relations (Restraint of Trade) Amendment Bill had its first reading in Parliament on 26 July 2023 and is now off to the Select Committee for further scrutiny.
The bill, which was introduced in September 2022 by Labour MP Helen White in the wake of journalist Tova O’Brien’s high-profile Employment Relations Authority dispute case, seeks to prohibit the use of restraints of trade in employment agreements for lower and middle-income employees. It also seeks to force employers to compensate any higher-income employees whom they insist on enforcing a restraint of trade for.
If the bill is passed into law, many Kiwi employers may be forced to re-evaluate their use of restraints of trade and may need to consider other ways to protect their intellectual property (IP).
Let’s take a look at what’s on the table.
First of all, let’s clarify what ‘restraint of trade’ means.
A restraint of trade, also commonly referred to as a ‘non-compete’, is a clause in an employment agreement that restricts a former employee from working for a competitor of, or setting up a business in competition with, their previous employer.
What does the Employment Relations (Restraint of Trade) Amendment Bill seek to change?
The bill seeks to amend the Employment Relations Act 2000 by:
- Preventing the use of restraint of trade clauses for employees who earn less than three times the minimum wage
- Restricting restraint of trade clauses to situations where an employer has a proprietary interest to protect (which must be described in the employment agreement)
- Requiring employers to pay those employees subject to a restraint of trade an amount equal to half the employee’s weekly earnings for each week that the restraint of trade is in effect
- Limiting the duration of a restraint of trade to a maximum of six months
In other words, if the bill becomes law, the only way an employer could enforce a restraint of trade is if:
- The employer has a legitimate proprietary interest to protect through the use of the restraint (which is detailed in the employment agreement)
- The employee earns more than three times the minimum wage
- Compensation is paid to any higher-income-earning employee subject to a restraint
- The restraint applies for no more than six months post-termination
What types of restraint does the bill cover?
The bill covers three types of restraints:
- Performing work in a similar field to their former employer’s business
- Contacting or dealing with clients of their former employer’s business
- Offering employment to employees of their former employer’s business
Have your say
If you would like to contribute to this bill, the Education and Workforce Committee is now calling for submissions. The closing date is 11.59 p.m. on 18 September 2023.
In the meantime, consider how your business might protect its IP in the absence of restraints of trade.
Initiatives to consider include:
- Strong internal policies, such as setting up confidentiality agreements and educating employees about the importance of IP protection and the policies and procedures they should follow.
- IP ownership: ensure that your employment contracts, contractor agreements, and partnership agreements clearly define the ownership of any IP created during the course of work.
- Identifying and protecting your company’s trade secrets: this may involve limiting access to sensitive information to a ‘need-to-know basis’.
- Patent protection: if your company develops a new and innovative product or process, consider applying for patents.
- Trademark and copyright protection: register your company’s trademarks and copyrights to protect your brand identity and creative works.
We can help
Balancing employment relations with IP protection can be difficult. If you need support managing this, we can help. Our initial chat is always free, and if you decide you’d like some independent, impartial, and up-to-date support, you can make use of our qualified HR expertise for as little as an hour, or as long as you’d like. It’s up to you.