Your Employees Signed Restraint Clauses. But Are They Actually Worth the Paper They’re Written On?

A recent Federal Court decision just sent a very clear message to employees who think they can walk out the door and take your clients with them: think again.

And for business owners? This case is a timely reminder that restraint clauses, done properly, still have real legal bite even as the government floats plans to water them down.

What happened in the Puxty v Monarch Advisory Group case?

Two employees joined Monarch Advisory Group in 2018. Their contracts included restraint clauses preventing them from soliciting the employer’s clients for 12 months after leaving.

When the partnership arrangement they’d hoped for didn’t eventuate, they set up their own company and took Monarch’s clients with them, including their business insurance policies.

Federal Court Justice Brigitte Markovic found they had breached their restraints and ordered them to pay $270,000 in damages. That figure was based on Monarch’s lost profits and the reduced price it achieved when selling the business, which had been agreed before the employees left.

The employees appealed. They argued the employer hadn’t proved on the balance of probabilities that it would have kept those clients.

The Full Court disagreed.

Justices Collier, Wheelahan and McElwaine found the employer had established its lost opportunity on the balance of probabilities and that quantifying the value of that loss didn’t require the same level of proof. The appeal was dismissed.

Read the full judgment here: Puxty v Monarch Advisory Group Pty Ltd (in liquidation) [2026] FCAFC 80

What does this mean for employers with restraint clauses in their contracts?

This case clarifies something important: courts will work hard to quantify your losses, even when the exact figures are difficult to pin down.

Justice Wheelahan confirmed three principles that apply when assessing damages from a restraint breach:

1. The court must do its best to quantify the loss, even if some degree of speculation is involved.
2. The value of the lost opportunity depends on what would likely have happened if the breach hadn’t occurred.
3. The “wrongdoer principle” applies, meaning courts can draw reasonable inferences against the party who caused the harm, where that conduct made it harder to prove the exact loss.

In plain English: if your employees breach their restraints and cost you clients or business value, the court doesn’t just throw its hands up because the numbers aren’t precise. It makes a call, and it leans toward the wronged party.

Are restraint clauses enforceable in Australia?

Yes, but with an important caveat. They need to be reasonable in scope.

Courts won’t enforce a restraint that’s excessively broad. The clause needs to go no further than necessary to protect a legitimate business interest, such as your client relationships, confidential information, or trade connections.

In this case, a 12-month non-solicitation restraint tied to specific clients was found to be reasonable and enforceable. That’s a useful benchmark.

Common reasons restraints fail:

• The clause is too wide in geography or duration
• There’s no legitimate interest being protected
• The wording is vague or inconsistent
• The contract itself is poorly drafted

A restraint that hasn’t been reviewed since 2018 is probably not doing the job you think it is.

What’s the difference between a non-compete clause and a non-solicitation clause?

These are often used interchangeably, but they’re not the same thing.

A non-compete clause prevents an employee from working for a competitor or setting up a competing business for a defined period after leaving.

A non-solicitation clause prevents an employee from approaching or soliciting the employer’s clients, customers or staff even if they’re not directly competing.

The Monarch case involved a non-solicitation clause. The employees weren’t stopped from starting their own business. They were stopped from going after their former employer’s clients.

Both types can be included in the same contract. Whether they’re enforceable depends on how they’re drafted and what interests they’re protecting.

Is the government planning to ban non-compete clauses in Australia?

Yes, and this is where things get interesting.

Back in 2025 the Federal Government announced plans to ban non-compete clauses starting in 2027. The details are still being worked through, including how broadly “non-compete” will be defined, who will be covered, and whether non-solicitation clauses will be caught as well. What we do know is that this will apply to everyone earning under $175k. We wrote a blog about this a few years ago.

What we know so far is that the proposed definition is broad. Whether it sweeps up non-solicitation clauses like the one in the Monarch case remains unclear.

Here’s our take: this feels like another policy that sounds reasonable in a press release but hasn’t been thought through from a small-business perspective.

Restraint clauses aren’t weapons employers use to trap workers. For most SMEs, they’re a basic commercial protection, the difference between keeping your client base and watching someone walk out the door with it. The Monarch case is a perfect example of what can happen when those protections work.

If the government removes that tool without replacing it with something meaningful, it’s small business owners who will pay the price.

We’ll be watching the consultation process closely. In the meantime, the rules that exist today are still the rules, and this case shows they still have teeth.

What should business owners do right now?

Don’t wait for the law to change, and don’t assume your existing contracts are watertight.

If your contracts were drafted years ago or downloaded from the internet, there’s a real chance your restraint clauses won’t hold up when you need them to.

Urgent:

• Review your employment contracts, especially for client-facing or senior roles
• Check that your restraint clauses are specific named clients, defined periods, clear geography
• Make sure new hires sign contracts before they start (not after)

Lower priority but still worth doing:

• Ensure confidential information is clearly defined in your contracts
• Consider whether your IP clauses are capturing client data, business methodologies and pricing
• Brief your HR advisor on any key roles where client relationships are at risk

Frequently Asked Questions

Can an employee challenge a restraint clause in court?

Yes. Any employee can argue a restraint is unreasonable and therefore unenforceable. Courts assess each clause on its own merits — the scope, the duration, the interest being protected, and the seniority of the role. That’s why getting the drafting right matters.

What damages can I claim if an employee breaches their restraint?

It depends on your losses. As this case shows, courts can award damages based on lost profits, lost client revenue and even a reduced business sale price — as long as you can establish the breach caused those losses on the balance of probabilities. You don’t need to prove every dollar precisely.

Do restraint clauses apply to casual employees?

They can, but it’s less common and the enforceability question gets more complex. If you have casual staff in client-facing roles, get advice before assuming a standard clause will hold up.

Will the government’s 2027 non-compete ban affect my existing contracts?

Possibly. The detail hasn’t been confirmed yet. The scope of the ban and whether it captures non-solicitation clauses is still being worked through. We’ll update our guidance as the legislation develops. For now, your current contracts operate under existing law.

What’s the fastest way to protect my business if I think an employee is about to breach their restraint?

Call a lawyer. You may have grounds to seek an urgent injunction to stop the breach in its tracks. HR Gurus can help you understand what’s in your contract and connect you with the right legal support.

Not sure your restraint clauses would actually hold up?

This is exactly the kind of thing we review as part of our contract audit service. We’ll tell you what’s working, what’s not, and what needs fixing — in plain English.

Book a contract review with HR Gurus today.