Contract clause
Restraint of trade clause: building a cascade for a business sale
A restraint of trade clause is any contract term that limits a person's freedom to work or do business after a relationship ends, covering non compete, non solicitation and no dealing promises. In Australia these clauses are often drafted as a cascade, a ladder of alternative periods and areas that lets a court drop the unreasonable rungs.
Australian drafters cannot know in advance which period and area a judge will accept, so they write several and let the court choose. That device, the cascading restraint, is useful, frequently criticised, and now the subject of federal consultation.
Indunil Asanka · Co-founder
4 min read · Published · Updated
Sample clause
Written for a business sale agreement under which Dr Mara Kelly, a fictional veterinarian, sells Gidgee Veterinary Clinic in Dubbo, a farm and companion animal practice, to a regional clinic group.
Restraint. (a) In this clause, Restraint Period means, in order of preference, 3 years, 2 years or 1 year after Completion, and Restraint Area means, in order of preference, within 50 kilometres, 25 kilometres or 10 kilometres of the Premises. (b) In consideration of the Purchase Price paid for the Goodwill, during the Restraint Period and within the Restraint Area the Vendor must not carry on, be employed in or hold an interest in a veterinary practice that competes with the Business. (c) Paragraph (b) operates as a separate restraint for each combination of Restraint Period and Restraint Area, so that it creates nine restraints. (d) If any combination is unenforceable, it is severed and the remaining combinations continue to apply, beginning with the longest period and the widest area that is enforceable. (e) Nothing in this clause prevents the Vendor from giving emergency treatment to an animal or from teaching veterinary science.
Sample wording, not legal advice.
Variants
Sale of business, activity ladder
A seller receiving payment for goodwill where the risk is the kind of work rather than the location, such as an online or mobile business.
In consideration of the Purchase Price, for the Restraint Period the Vendor must not, anywhere in Australia: (i) carry on or be concerned in a business similar to the Business; failing which (ii) supply services similar to the Services to any person who was a customer of the Business in the 12 months before Completion; failing which (iii) solicit any such customer. Restraint Period means 3 years, 2 years or 1 year from Completion. Each combination of activity and period is a separate and severable restraint.
Vendor who stays on after completion
A seller who works for the buyer for a handover period, so the restraint should run from the later of completion and the end of that engagement.
The Restraint Period begins on the later of Completion and the date the Vendor's consultancy with the Purchaser ends, and means 2 years, 1 year or 6 months from that date. The restraint is given in consideration of the Purchase Price for the Goodwill and not of any fee paid under the consultancy, and each combination of period and Restraint Area is a separate and severable restraint.
Partnership or shareholder exit
A departing owner who has had full access to strategy and pricing, and who is paid out for an interest in the business.
For 18 months, 12 months or 6 months after ceasing to hold Shares, the Outgoing Shareholder must not solicit any client or employee of the Company or hold an interest in a competing business in Australia, New South Wales or the Central West. Each combination of period, area and activity is a separate restraint, and the parties acknowledge that each was negotiated between commercially advised parties.
What to negotiate
The top rung
Buyers are tempted to start the ladder at an ambitious period and area, expecting the court to step down. Sellers point out that the widest rungs still shape behaviour, because few people want to test them. A top rung the buyer could genuinely justify from the price paid for goodwill is fairer and removes the argument that the cascade was built to intimidate.
How many combinations
Three periods and three areas already produce nine restraints. Ladders with dozens of combinations invite criticism that the seller could never know what they agreed to. Sellers commonly ask for fewer rungs, and buyers gain little from more than two or three steps on each axis.
What sits alongside the cascade
A cascade is sometimes used in place of narrower drafting. Sellers ask for carve outs, such as emergency work, teaching or unrelated activities, and for the period to run from completion rather than from the end of any handover role. Buyers who accept those changes usually end up with a restraint that needs fewer fallback rungs to survive.
The risk of leaving it out
A single fixed restraint that a court finds too wide is severed entirely in most states, leaving the business with no restraint at all. Omitting any restraint means the employee or seller is free to compete immediately, restrained only by confidentiality obligations and, for a seller, whatever protection of goodwill the general law implies.
How the cascade works
A court will not rewrite an unreasonable restraint in most Australian jurisdictions, but it can sever words that leave a sensible clause behind. A cascade exploits that by defining the period and the area as lists of alternatives and declaring that every combination is a separate promise. If the widest combination fails, the court strikes it out and tests the next one, until it reaches a combination that protects a legitimate interest without going further than necessary. New South Wales differs, because the Restraints of Trade Act 1976 lets a court read down a restraint to what is reasonable, so cascades matter less there, although national employers use them anyway. Courts have generally accepted cascades, while criticising those with so many steps that certainty disappears, and every rung is still tested against the reasonableness principles the High Court applied in Lindner v Murdock's Garage (1950).
Why a sale of business carries a longer ladder
A buyer who pays for goodwill is buying the customers' habit of coming back, and a seller who opens next door the following month takes it straight back. Courts therefore accept longer periods and wider areas on a sale than in employment, where the interests are narrower and the bargaining uneven; an employee restraint is covered on the non compete clause page. The ladder should still be anchored in the deal: the top rung near the longest time a new owner plausibly needs to win the clientele over, and the areas matched to where customers actually come from. Tying the restraint expressly to the price paid for goodwill helps, and a restraint that is solely for protecting the buyer of goodwill is carved out of several competition law prohibitions by section 51(2)(e) of the Competition and Consumer Act 2010. Federal consultation opened in September 2026 on banning cascading clauses, so check the final outcome before relying on a ladder.
Shareholder and partner exits
An outgoing shareholder or partner sits between the two cases. They are usually paid for their interest, like a vendor, but they may also have been an employee of the company, and the restraint is judged on what they were paid for and what they had access to. Put the restraint in the share sale or exit deed rather than the employment contract, state the consideration it is given for, and keep the ladder shorter than on a full business sale, because the departing holder is often one of several owners and the goodwill does not leave with them alone.
Documents that carry this clause
Non-compete agreement template with cascading restraint clausesAn Australian non-compete lives or dies on how it is drafted, because a court will not rewrite one that reaches too far. This one restrains a senior stylist from a competing salon using three separate covenants of falling reach, from 5 kilometres for six months down to 1 kilometre for three, and pays $4,500 for them.
Non-solicitation agreement for clients, staff and durationA non-solicitation agreement restrains the approach, not the work. This one lets an accounting manager join a competitor the day after he leaves, and stops him approaching the clients he handled or the colleagues he managed for twelve months, with a six month window in which he also cannot accept work from those clients.
Employment contractA full time ongoing contract for an operations coordinator on $86,000 plus $10,320 of superannuation. Eleven numbered clauses, a leave table drawn from the National Employment Standards, and a notice table that scales with service.
Shareholders agreement template for a company after a seed roundA shareholders agreement template sets out who owns what, who sits on the board, which decisions need shareholder consent, how shares are sold, and how a deadlock ends. This one is filled in for a Queensland veterinary diagnostics company that has just taken $1.5 million from one seed fund, leaving the two founders with 80 per cent between them. Its central number is an 85 per cent consent threshold for eight reserved matters, and the page below shows what that number does and does not protect.Questions people ask
What does a restraint of trade clause cover?
Any promise that limits what a person may do after the relationship ends: not competing, not soliciting clients or staff, not dealing with particular clients, or not using a business name. Each promise is presumed unenforceable unless the party relying on it shows a legitimate interest and a reasonable scope.
Are cascading restraints enforceable in Australia?
Courts have generally accepted them as a legitimate way to let severance work, provided each combination is a genuine alternative and at least one protects a real interest reasonably. Cascades with a very large number of combinations attract criticism for uncertainty, and each rung is still judged on ordinary reasonableness principles.
Why do cascades matter less in New South Wales?
The Restraints of Trade Act 1976 allows a New South Wales court to read down a restraint to what is reasonable rather than striking it out. That gives a single restraint a way to survive in part. Businesses operating across states still use cascades so the same clause works everywhere.
Is a sale of business restraint treated differently from an employment restraint?
Yes. A buyer has paid for goodwill that the seller could otherwise take back by competing, so courts accept longer periods and wider areas than in employment. The parties are also usually advised and bargaining more evenly, which supports the reasonableness of the terms they chose.
Will cascading restraint clauses be banned?
The Government opened consultation on banning cascading restraint of trade clauses on 7 September 2026, with submissions closing on 2 October 2026. It is a consultation, not a law, and how any ban would apply to existing contracts or to different kinds of restraint has not been settled.
What makes a restraint reasonable?
It must protect a legitimate interest, such as confidential information, client connections or goodwill, and go no further in time, area or activity than that interest needs. Reasonableness is assessed at the time the contract was made, taking account of the role, the parties and any payment given for the restraint.
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