12-Month Non-Compete Clauses In New Zealand Employment Agreements

You’ve invested time and money into building your business - training staff, developing systems, refining pricing, and earning client trust.

So when a key employee leaves, it’s completely normal to worry about them walking straight into a competitor (or starting up on their own) and taking your customers, suppliers, or confidential know-how with them.

That’s where restraint clauses come in. In particular, many NZ employers ask about including a 12 month non-compete clause - whether it’s enforceable, whether it’s “standard”, and what you need to do to make it more likely to hold up if things go sideways.

Below, we’ll break down how 12 month non-compete clauses work in New Zealand, what makes them enforceable (or not), and how to approach restraints in a practical, small-business-friendly way.

What Is A 12 Month Non-Compete Clause (And Why Do Employers Use It)?

A 12 month non-compete clause is a type of restraint (often called a “restraint of trade”) in an employment agreement. In simple terms, it aims to stop an employee from competing with your business for 12 months after their employment ends.

“Competing” can mean different things depending on how the clause is drafted, for example:

• working for a competitor in a similar role
• starting a competing business
• providing similar services to your clients
• soliciting (approaching) your customers or staff

From an employer’s perspective, the goal is usually to protect things like:

• customer relationships your team built on your time and your dime
• confidential information (pricing, margins, strategies, supplier terms, sales pipeline)
• trade secrets and unique processes
• goodwill in the brand you’ve built

A key point: a non-compete clause is only one tool. In many cases, other clauses are more practical (and more enforceable) - like confidentiality and non-solicitation obligations - but it depends on your business, the role, and the risk profile.

These clauses usually sit inside your Employment Contract, alongside terms about duties, pay, leave, and termination.

Are 12 Month Non-Compete Clauses Enforceable In New Zealand?

Non-compete clauses can be enforceable in New Zealand, but they are not automatically enforceable just because they’re written into the agreement.

In NZ, restraints of trade are generally viewed as a restriction on someone’s ability to earn a living. Because of that, the starting position is:

• restraints are treated with caution, and
• they need to be reasonable to be enforceable.

Whether a 12 month non-compete clause is enforceable depends on the specific facts. There isn’t a one-size-fits-all rule.

When a dispute comes up, the key question usually becomes:

Is the restraint no more than reasonably necessary to protect the employer’s legitimate business interests?

If the clause goes further than it needs to, a court or the Employment Relations Authority may refuse to enforce it. In some situations, a decision-maker may enforce a narrower version, but you shouldn’t assume an overly broad restraint will simply be “read down” and saved - that often turns on the wording, the circumstances, and the approach taken in the particular case.

That’s why it’s worth thinking about restraints as a risk-management tool you tailor - not a “standard paragraph” you drop into every contract.

What Makes A 12 Month Non-Compete Clause “Reasonable”?

If you’re considering a 12 month restraint, the best approach is to build it around what you can actually justify as necessary for your business.

Reasonableness usually comes down to a few core factors:

1) The Role And Seniority Of The Employee

A 12 month non-compete clause is far more likely to be justifiable for:

• senior managers
• sales leaders with deep customer relationships
• technical specialists with access to high-value confidential information
• employees who are effectively “the face” of your business to clients

For a junior or entry-level role, a 12 month non-compete can look heavy-handed - and may be harder to enforce.

2) The Geographic Area Covered

Restraints often include a geographic scope (for example, “within 10km”, “within Auckland”, or “within New Zealand”). The broader the area, the more justification you generally need.

Ask yourself:

• Where do you actually trade?
• Is your customer base local, regional, or nationwide?
• Would a smaller radius still protect you?

For online businesses or businesses servicing clients nationwide, “geography” can become tricky - and you may need a different approach to defining competition.

3) The Length Of Time (Why 12 Months?)

A 12 month period needs a business reason. For example, you might argue that 12 months is needed because:

• it takes that long for your sales pipeline to turn over
• client renewal cycles run annually
• pricing and strategy would remain commercially sensitive for at least a year
• it would take 6–12 months to recruit and train a replacement and stabilise client relationships

If you can’t articulate why 12 months is needed (as opposed to, say, 3 or 6 months), the clause may be vulnerable.

4) What “Competing” Actually Means In The Clause

“The employee must not compete with the business” is often too vague - and can be interpreted too broadly.

Better-drafted clauses define competition in a way that matches your actual risk. For example:

• competing in a specific industry segment
• competing by providing particular services
• competing with particular classes of customers

The more precisely the clause is drafted, the easier it is to argue it’s reasonable.

5) Whether You Have A Legitimate Business Interest To Protect

This is a big one. A restraint isn’t there just to make it harder for someone to leave.

Usually, enforceable restraints are linked to protecting things like:

• confidential information and trade secrets
• customer connections and goodwill
• stable workforce (preventing poaching in some cases)

If your business interest is really “we don’t want competition”, that’s generally not enough on its own.

Alternatives To A 12 Month Non-Compete Clause (Often More Practical)

For many small businesses, the best protection isn’t always a strict 12 month non-compete clause.

Instead, you might use a combination of targeted restraints that are easier to justify and enforce - while still protecting what matters.

Non-Solicitation Of Clients

A non-solicitation clause focuses on stopping a former employee from actively approaching your clients (or sometimes specific key clients) for a defined period.

This is often easier to justify than a full non-compete, because it still lets the person work - it just protects your customer relationships.

Non-Poaching Of Staff

If you’ve spent years building a team, a staff non-solicitation clause can help reduce the risk of a departing manager trying to recruit your employees to a competitor or new venture.

Confidentiality Obligations

Confidentiality clauses are crucial. They should clearly define what counts as confidential information and what must be returned or deleted when employment ends.

Depending on your business, it may also make sense to strengthen confidentiality obligations with internal policies and access controls.

Garden Leave (In The Right Circumstances)

Some businesses use “garden leave” during a notice period - meaning the employee is still employed and paid, but is not attending work and is removed from client contact and systems.

This can reduce risk without relying on a long post-employment restraint, but it needs to be handled carefully and align with the employment agreement and a fair process.

If you’re unsure what combination fits your situation, getting tailored advice early is usually cheaper (and far less stressful) than trying to enforce a badly-fitted restraint later.

How To Draft A 12 Month Non-Compete Clause That Better Protects Your Business

If you’ve decided a 12 month restraint is appropriate, the next step is making sure it’s drafted in a way that has the best chance of standing up in the real world.

Here are practical drafting strategies that often make a difference.

Use A “Cascading” Clause (So It Can Scale Down If Needed)

A common issue with restraints is that they’re “all or nothing”. If a decision-maker thinks it’s too broad, the whole thing may fall over.

One approach is to use a cascading restraint (sometimes called a “ladder” or “step-down” clause), where you include multiple options for:

• time (for example 12 months, 9 months, 6 months)
• geography (for example NZ-wide, region, 10km radius)
• scope (broad to narrow)

The idea is that if the broadest version isn’t reasonable, a narrower version might still be enforceable. However, these clauses are technical and aren’t risk-free: they need careful drafting, and whether they work can depend on the wording and how a court or the Employment Relations Authority approaches the restraint in the circumstances.

Because drafting these properly is technical (and you don’t want a clause that becomes confusing or inconsistent), it’s one of those areas where a lawyer-drafted clause really matters.

Tie The Restraint To The Employee’s Actual Duties

If the clause restrains them from activities they were never involved in, it can look unreasonable.

As a simple check: if the employee challenged the clause, could you explain clearly how their role exposed them to specific risks (clients, pricing, strategy, systems) that justify the restraint?

Define “Competitor” And “Restricted Business” Carefully

A restraint that bans someone from working for “any business that competes” can be too broad in industries where many businesses overlap.

Instead, consider definitions that match how your business actually operates.

For example, if you’re a digital agency, you might narrow it to competing in particular service lines, rather than banning the person from working anywhere in marketing.

Make Sure Your Termination And Notice Terms Are Clear

Restraints often get tested when a relationship breaks down. If your employment agreement is unclear about termination, notice, and post-employment obligations, disputes become more likely.

It’s worth ensuring your termination clauses are consistent and workable, including whether payment in lieu of notice is allowed and how it interacts with post-employment obligations.

Don’t Rely On A Template

Restraints are one of the quickest ways to end up with a clause that looks impressive on paper but doesn’t protect you in practice.

Even within the same industry, what’s reasonable can change depending on:

• your location and trading area
• how you win work (long-term contracts vs one-off jobs)
• how specialised your service is
• how senior the employee is

If you want a clause that genuinely protects your business, it’s usually worth having your Employment Lawyer tailor it to your circumstances.

Common Mistakes Employers Make With 12 Month Non-Compete Clauses

Most problems with a 12 month non-compete clause aren’t about the concept - they’re about how it’s used.

Here are some common pitfalls we see small businesses run into.

Using The Same Restraint For Every Role

If you apply a 12 month non-compete to everyone (including junior staff), it can undermine your position. Restraints should match the risk of the role.

Making The Clause Too Broad “Just In Case”

It’s tempting to draft a clause that covers every possible scenario. But overreach can backfire - a clause that goes too far is more likely to be challenged and less likely to be enforced.

Not Having Strong Confidentiality And IP Protections

Sometimes employers focus on non-competes but forget the basics: confidentiality and ownership of work product.

If your team creates content, designs, software, client proposals, or internal systems, you should also think about IP protection in your contracts. Depending on your structure, it can also be relevant to have a clear Confidentiality Clause and a documented approach to IP ownership and assignment.

Trying To Enforce A Restraint Without A Solid Offboarding Process

If a staff member leaves and you don’t properly manage offboarding, you may increase the risk of confidential information walking out the door.

Practical steps include:

• revoking access to systems promptly
• confirming return of devices and documents
• reminding the employee (in writing) of confidentiality and restraint obligations
• ensuring client contact lists, templates, and internal data are stored centrally

Forgetting That Process And Fairness Still Matter

Even though a restraint is a contract term, employment relationships in NZ are heavily influenced by good faith obligations and fair process expectations.

If you’re in a situation where you’re changing roles, adjusting duties, or looking at termination, it’s worth getting advice early so you don’t accidentally create a bigger employment issue while trying to manage restraint risk.

For example, if you’re restructuring and changing staff hours or duties, there are legal process considerations (including consultation) before changes take effect - and that can indirectly impact how a restraint dispute plays out later. (If this is on your radar, situations like reducing staff hours should be handled carefully.)

Key Takeaways

• A 12 month non-compete clause can help protect your business after an employee leaves, but it’s only enforceable if it’s reasonable and protects a legitimate business interest (like confidential information or customer relationships).
• Whether 12 months is reasonable depends on the role, seniority, access to sensitive information, client relationship depth, geographic scope, and the specific industry context.
• Many small businesses are better protected (and face less enforcement risk) by using targeted clauses like confidentiality and non-solicitation, rather than relying only on a broad non-compete.
• Drafting matters - overly broad restraints can be difficult to enforce, while carefully scoped restraints (including properly drafted cascading clauses) are more likely to hold up.
• Your restraint strategy should be aligned with your overall employment setup, including clear termination terms and consistent offboarding processes.
• Enforceability is highly fact-specific. If you’re adding a restraint to an existing employee’s agreement, you’ll also generally need to ensure it’s introduced properly (including with appropriate consideration) and through a fair process.
• If you want restraints that genuinely protect your business, it’s worth getting your Employment Contract and restraint clauses tailored by a lawyer rather than using a generic template.

If you’d like help drafting or reviewing a 12 month non-compete clause (or updating your employment agreements more generally), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.