How Long Do Restraint Of Trade Clauses Last In NZ?

If you’ve ever hired a key employee, brought on a contractor, or sold a business, you’ve probably come across a restraint of trade clause.

It’s one of those terms that sounds straightforward (“they can’t compete with me for X months”), but in practice, the details matter a lot - especially when you’re trying to work out how long a restraint of trade clause should last, and whether it will actually hold up if challenged.

In this guide, we’ll walk through how long restraint of trade clauses can last in New Zealand, what affects enforceability, and how to set yours up in a way that properly protects your business (without asking for more than the law will allow).

What Is A Restraint Of Trade Clause (And Why Do Businesses Use Them)?

A restraint of trade clause is a contract term that limits what someone can do after their relationship with your business ends. In most cases, this means restricting them from competing with you for a certain time, in a certain area, or with certain customers.

For small businesses, restraints are usually about protecting things like:

• client relationships (your customers shouldn’t be “taken” the day someone leaves);
• confidential information (pricing, systems, sales pipelines, marketing strategies, supplier terms);
• goodwill (the commercial value in your business reputation and customer base); and
• investment in staff (for example, when you’ve trained someone into a senior role).

Restraints usually show up in:

• an Employment Contract (especially for sales, management, or client-facing roles);
• a contractor arrangement where someone has access to your customers or systems;
• a sale of business contract, where the seller agrees not to compete for a period after settlement; and
• founder / ownership documentation where people leaving the business are restricted.

In NZ, restraints aren’t automatically “valid” just because they’re written down. The key question is whether the restraint is reasonable and protects a legitimate business interest.

How Long Do Restraint Of Trade Clauses Last In NZ?

There’s no single legal maximum duration that applies across every restraint of trade clause in New Zealand. Instead, enforceability depends on whether the time period is considered reasonable in your specific circumstances.

That said, in practice, restraint periods often fall into common ranges depending on the type of relationship and what you’re trying to protect.

Common Restraint Durations (As A Starting Point)

Here are typical timeframes that often appear in NZ business contracts (but remember: what’s “typical” isn’t always enforceable):

• 3 months: often used for junior-to-mid roles or where you want a short “cooling off” period for customer contact.
• 6 months: a common middle ground for client-facing employees or contractors with meaningful customer relationships.
• 12 months: more common for senior employees, key account managers, executives, or in business sale contexts.
• 24 months+: sometimes used in business sale restraints (especially where the seller received a significant payment for goodwill), but may be difficult to justify in standard employment contexts.

The important point is this: a longer duration increases risk. The longer your restraint runs, the more you’ll need to justify why that restriction is necessary to protect your business.

What Courts Typically Care About (It’s Not Just The Number Of Months)

When a restraint is challenged, decision-makers generally look at the restraint as a whole, including:

• Duration: how long the restriction lasts.
• Geographic scope: whether it’s limited to your real trading area (not “New Zealand” by default).
• Activity scope: what exactly is restricted (competing generally vs soliciting specific customers).
• The person’s role and influence: did they actually have customer sway or access to sensitive information?
• The interest you’re protecting: goodwill, confidential information, and key relationships are the usual legitimate interests.

So while this article focuses on how long a restraint lasts, the “how long” question can’t be separated from “how broad” and “why”. They all work together.

What Makes A Restraint Duration “Reasonable” For A Small Business?

Reasonableness is the core test. Your restraint duration should be no longer than necessary to protect what you’ve built.

For many small businesses, the most persuasive reasoning is practical and commercial, for example:

• How long it realistically takes to replace the relationship holder (e.g. a sales rep) with a new staff member.
• How long until key client relationships would naturally “reset” (for example, after contract renewals or seasonal cycles).
• How long confidential information stays commercially sensitive (pricing might be sensitive for 3–6 months, while strategic plans could be relevant longer).

Employee Vs Contractor Vs Business Sale: Duration Expectations Differ

It’s worth separating the context, because the same duration can be treated very differently:

• Employment restraints: these are often scrutinised closely because they affect someone’s ability to earn an income. Durations need to be particularly defensible.
• Contractor restraints: still need to be reasonable, but the power imbalance may be viewed differently depending on the contractor’s independence and bargaining position.
• Business sale restraints: courts can be more willing to enforce longer restraints if the seller received value for goodwill and the restraint is part of protecting what the buyer paid for.

If you’re unsure which category you’re in (for example, where a “contractor” is working like an employee), it’s a good time to get advice early - misclassifying relationships can create wider legal risks beyond restraints.

A Quick Reality Check: “As Long As Possible” Often Backfires

It’s tempting to write a restraint for 24 months “just in case”. The problem is that if it’s too long to justify, you might end up with a clause that’s hard to enforce at all, or that becomes a distraction during an already stressful exit.

A better approach is to choose a duration that aligns with your real business risks - and then draft the clause carefully so it targets those risks precisely.

Do Restraint Of Trade Clauses Have To Be Enforced Exactly As Written?

Not always.

In NZ, restraints can be disputed, negotiated, or narrowed. Courts can sometimes modify (or “read down”) a restraint so it goes no further than is reasonable, but you shouldn’t rely on a “we’ll fix it later” approach - because whether a restraint can be saved, and how far it can be adjusted, depends heavily on the wording and the context.

Use “Cascading” Restraints To Improve Enforceability

One common way businesses manage uncertainty around how long a restraint should last is to use a cascading clause (sometimes called a “ladder” clause).

Instead of one single duration and area, a cascading restraint provides several alternatives, such as:

• 12 months, or if that’s not enforceable then 9 months, then 6 months, then 3 months; and/or
• within 10km, or if that’s not enforceable then 5km, then 2km.

This gives a decision-maker more “reasonable” options to enforce, rather than an all-or-nothing outcome.

The wording has to be done properly though - messy cascading clauses can create interpretation issues, and an unclear clause can be just as problematic as an overly broad one. (If you’re using this drafting style, it’s worth getting help so it’s tailored and internally consistent.)

Consider Whether You Need Non-Solicitation Instead Of Non-Compete

Many businesses don’t actually need to stop someone from working for a competitor at all. What they really need is to stop them from taking customers and staff.

Depending on your situation, a more enforceable option may be:

• Non-solicitation: the person can work where they like, but can’t approach your clients or employees for a period.
• Non-dealing: the person can’t do business with your customers (even if the customer approaches them).

These clauses can still be challenged, but they’re often easier to justify than a broad “non-compete”, and that can directly influence what duration is considered reasonable.

How Do You Choose The Right Restraint Of Trade Clause Duration For Your Business?

If you want a restraint that stands up in the real world (and doesn’t just look good on paper), you need to match the duration to the risk.

Here’s a practical way to think about it.

Step 1: Identify What You’re Actually Protecting

Ask yourself: if this person leaves tomorrow, what’s the real damage?

Common legitimate interests include:

• existing customer relationships the person managed;
• your sales pipeline and lead lists;
• confidential pricing, margins, and quoting methods;
• supplier terms and proprietary processes; and
• strategic plans (expansion, product development, marketing campaigns).

If you can’t clearly describe the interest you’re protecting, it’s usually a sign the restraint (or at least the duration) is too broad.

Step 2: Match Duration To A Real Business Timeline

Good restraint durations are often linked to a timeline that makes business sense, such as:

• time until customers typically renew or switch suppliers;
• time to replace and train a new employee;
• time until confidential information becomes outdated; or
• time to introduce a new relationship manager to key accounts.

For example, if your clients typically sign 6-month service contracts and renew at the end of the term, a 6-month restraint may be easier to justify than 12 months.

Step 3: Keep The Scope Tight (So The Duration Doesn’t Need To Be Huge)

If your restraint is narrowly drafted, you often don’t need an extreme duration.

For example, a clause preventing solicitation of customers the person dealt with in the last 6 months is usually more defensible than “no competition in New Zealand for 12 months”.

This is especially important if you’re using restraints in an employment setting. Your Employment Contract should reflect the person’s genuine influence and access, not just a “standard” restraint copied across every role.

Step 4: Make Sure The Rest Of Your Contracts Support The Restraint

A restraint clause won’t do all the heavy lifting on its own.

You should also make sure you’ve got strong contract foundations in place, like:

• clear confidentiality obligations (including return/deletion of business information);
• well-defined duties and position descriptions (so it’s clear what access the person had); and
• a proper exit process (handover, return of equipment, access removal).

Where you’re engaging contractors or suppliers, your wider Service Agreement terms should also address confidentiality, IP, and customer contact rules (rather than relying on an informal arrangement).

What Are The Risks Of Getting The Duration Wrong?

A restraint of trade clause is meant to protect you - but if it’s drafted poorly, it can create disputes, delay exits, and be expensive to enforce.

Here are the key risks we see when restraint durations aren’t thought through properly.

Your Restraint Might Be Unenforceable (Or Only Partly Enforceable)

If the duration is longer than necessary, it increases the chance the restraint will be challenged as unreasonable.

That can mean:

• you can’t stop the competing behaviour you were trying to prevent;
• you’re forced into negotiations you weren’t expecting; or
• you spend time and money arguing over a clause that could have been drafted more strategically from the start.

It Can Damage Your Working Relationship And Reputation

Even if you’re legally in the right, an overly aggressive restraint can sour an exit and impact your employer brand - which matters if you’re trying to recruit in a small market or industry where “word gets around”.

It Can Create Confusion During A Sale Or Transition

If you’re selling your business, restraints often become a key part of buyer confidence.

Unclear or unreasonable restraints can complicate negotiations and due diligence, especially if the buyer is relying on goodwill protection post-settlement. If you’re entering a transaction like this, the structure and drafting of your deal documents matter (including whether it’s a share sale or asset sale, and how goodwill is treated).

If you’re at that stage, it can also be helpful to have the wider transaction documents reviewed so restraints align with the rest of the deal - for example under a Business Sale Agreement.

It Might Not Protect What You Think It Protects

Sometimes the issue isn’t that the restraint is too long - it’s that the clause is aimed at the wrong thing.

For example, you may be focused on duration, but the clause doesn’t clearly define:

• which customers are covered;
• what “competing” means in your industry; or
• whether indirect solicitation is included (e.g. through another business).

That’s why restraints should be treated as part of your overall risk management and legal setup - not a last-minute add-on.

Key Takeaways

• In NZ, there isn’t a fixed “maximum” restraint period - the duration needs to be reasonable based on the role, industry, and business interest you’re protecting.
• Common durations in practice include 3, 6, and 12 months, but longer periods may be harder to justify (especially in employment contexts).
• Duration is only one part of enforceability - the activity scope and geographic scope also need to be narrow enough to be defensible.
• Cascading restraints can improve enforceability by offering multiple duration (and area) options, but they need careful drafting to avoid ambiguity.
• In many cases, a non-solicitation or non-dealing clause (with a sensible duration) may protect your customer relationships more effectively than a broad non-compete.
• The best restraints are practical: they match a real business timeline (like renewal cycles, training time, or the lifespan of confidential information) and are supported by strong underlying contract terms.

If you’d like help drafting or reviewing a restraint of trade clause that actually fits your business (and aligns with your wider contracts), reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.