Concerned About Competition From A Former Employee, Contractor Or Service Provider? A Non-Compete Agreement May Be The Solution (2026 Updated)

It’s a common (and very reasonable) worry: you invest time and money building up your customer base, refining your systems, and training people to deliver your service… and then someone leaves and starts targeting the same clients.

Whether it’s a former employee, contractor, consultant, or even an agency you engaged, it can feel like your business has been copied from the inside out.

The good news is you’re not powerless. A well-drafted non-compete agreement (more accurately, a “restraint of trade” clause) can be one of the most effective legal tools for protecting your business, your goodwill, and your confidential information. This article is updated to reflect the way New Zealand businesses are managing competition risks right now, including more remote work, more contractor-based workforces, and more businesses selling online.

Let’s break down what a non-compete agreement is, when it can work, when it won’t, and what you should do to protect your business from day one.

What Is A Non-Compete Agreement In New Zealand (And Is It Enforceable)?

In New Zealand, a “non-compete agreement” usually refers to a clause in a contract that restricts someone from competing with your business for a period of time and/or within a certain area after the relationship ends.

You’ll usually see non-compete obligations inside:

• employment agreements (especially for senior staff, sales roles, and client-facing roles)
• contractor agreements (where a contractor works closely with your customers or internal systems)
• service provider agreements (for agencies or consultants handling your marketing, sales funnels, operations, or client accounts)
• business sale agreements (where the seller agrees not to immediately start a competing business)

In NZ, restraint of trade clauses can be enforceable, but they’re not automatically enforceable just because they’re written down.

As a general rule, restraint clauses are only enforceable where they are:

• reasonable in scope (time, geography, and what activities are actually restricted)
• necessary to protect a legitimate business interest (not just to “stop competition”)
• not contrary to public policy (for example, unfairly preventing someone from earning a living)

This is why “template” non-compete clauses often fail. If your clause is too broad, too long, or not linked to a real protectable interest, it may be difficult (or impossible) to enforce when it matters.

If you’re putting these clauses into an Employment Contract or a contractor arrangement, it’s worth getting it drafted properly so it matches your actual business risk.

When Do You Actually Need A Non-Compete (And When Is Something Else Better)?

A non-compete is a powerful tool, but it’s not always the first (or best) option.

Before you reach for a non-compete clause, it helps to get clear on what you’re trying to protect. In most cases, the real concern is one (or more) of the following:

• client relationships and goodwill (e.g. “my clients followed them”)
• confidential information (pricing, margins, processes, supplier terms, internal documents)
• trade secrets (formulas, methods, key strategy documents)
• key staff stability (they leave and try to “poach” your team)

Depending on the risk, you might be better protected (or more likely to enforce your rights) by using a combination of clauses:

• Non-solicitation: stops them from approaching or dealing with your clients for a set time
• Non-dealing: stops them from working with your clients, even if the client approaches them
• Confidentiality obligations: stops them from using or disclosing confidential information
• IP ownership and assignment: confirms your business owns what they create for you

In practice, many businesses find a tailored non-solicitation / non-dealing clause is more enforceable than a broad “you can’t compete at all” non-compete. It’s also easier to justify because it directly targets your legitimate interest (your customer relationships).

And if your main worry is confidential info rather than direct competition, a strong Non-Disclosure Agreement (or confidentiality clause inside your contract) is often essential.

How Do Courts Decide If A Non-Compete Is Reasonable?

When a restraint clause is challenged, the key question becomes: is it reasonable in the circumstances?

There isn’t a one-size-fits-all answer. What’s “reasonable” depends on your business, the person’s role, what information they had access to, and the market you operate in.

1. Time Period

The longer the restraint period, the harder it can be to justify.

For example, if you’re trying to restrain a junior worker for 24 months, that’s likely to raise questions. But a shorter period might be reasonable if the person was senior, had strong customer influence, and the restraint is targeted.

A good way to think about it is:

• How long would it realistically take for your customer relationships to “cool off”?
• How long would it take you to transition clients to another staff member or contractor?
• How quickly does your pricing / strategy change in your industry?

2. Geographic Area

A restraint that covers “New Zealand” might be reasonable for a national online business, but unreasonable for a local trade or clinic whose clients are based in one suburb or region.

Geography should match where you actually compete (or where the person could realistically harm your goodwill).

3. Restricted Activities

This is where many restraints go wrong.

If your clause says the person can’t work “in any business similar to yours in any capacity” (even as a receptionist, admin, or in a completely different service line), that can be too broad.

More defensible clauses are specific, such as restricting:

• providing the same services they provided for you
• working with your clients or prospects
• approaching your suppliers with confidential pricing knowledge

4. The Person’s Role And Influence

Restraints are generally more justifiable where the person had:

• direct client relationships
• access to sensitive commercial information
• authority to set pricing, strategy, or supplier terms
• brand influence (e.g. they were “the face” of your business on socials)

This is why restraints should be tailored by role. You don’t want a “one clause fits all staff” approach if you’re serious about enforceability.

Employees vs Contractors vs Service Providers: What Changes?

One of the biggest practical mistakes we see is businesses using the same restraint wording across employees, contractors, and service providers.

Even if the competitive risk feels the same, the legal and commercial context can be different. Here’s how to think about each scenario.

Employees

Restraints in employment relationships are often closely scrutinised because employees are typically in a less equal bargaining position.

That doesn’t mean restraints are “not allowed”. It just means your clause needs to be clearly connected to your protectable interests and proportionate to the employee’s role.

Also, your employment agreement should work together with your broader workplace expectations (confidentiality, information security, device use, etc.). If you have policies, make sure they’re consistent and enforceable.

Contractors

Contractors often have more independence, and it’s common for them to work with multiple clients. That changes how you approach restrictions.

Instead of trying to ban all competition, you might focus on:

• not soliciting or dealing with your clients for a period
• returning (and not using) your confidential information
• clear IP ownership rules (so they can’t reuse what you paid for)

If you’re engaging contractors, make sure the relationship is documented properly from the start (including what happens when the engagement ends). If you need help setting this up, a tailored Contractor Agreement is usually the right foundation.

Service Providers (Agencies, Consultants, Freelancers)

Service providers can be a sneaky source of competition risk, especially where they manage your marketing, leads, customer data, CRM, ads accounts, or product launches.

Common examples include:

• a marketing agency that starts running the same campaigns for your direct competitor
• a consultant who takes your playbook and sells it to someone else
• a developer who reuses your codebase or functionality for another client

In these arrangements, it’s often the confidentiality and IP clauses that do most of the heavy lifting, along with carefully drafted conflict-of-interest provisions.

If you’re working with a provider on an ongoing basis, a properly drafted Service Agreement can help make sure restrictions are clear and enforceable.

What Should A Good Non-Compete Clause Include?

If you’re going to rely on a restraint clause, you want it to be drafted in a way that actually helps you when a dispute pops up (not just something that looks tough on paper).

While every clause should be tailored, a well-built non-compete / restraint package often includes:

Clear Definitions

• What is the “business” you’re protecting?
• Who counts as a “client” (current clients only, past clients, leads, referrers)?
• What is “confidential information” (and what is excluded)?

Reasonable Limits (Time, Place, Activities)

This is the core of enforceability. The clause should explain the:

• restraint period (e.g. 3 months, 6 months)
• restraint area (e.g. within a certain region, or where you actually operate)
• restricted activities (specific to what they did and what harms you)

Non-Solicitation And Non-Dealing Alternatives

Many businesses use a “layered” approach, where the contract includes:

• a narrow non-compete (for higher risk roles)
• a broader non-solicitation / non-dealing clause (often easier to justify)

This can give you more than one pathway to protect your client base depending on what actually happens after the relationship ends.

Confidentiality And IP Clauses That Back It Up

Even the best restraint clause can be undermined if your contract is vague about confidentiality and intellectual property.

As a starting point, your agreements should cover:

• return of documents and access credentials on exit
• ongoing confidentiality obligations after termination
• IP ownership (especially for contractors and creatives)

If you’re building or improving a product, platform, or brand assets, it may also be important to document ownership and licensing properly with an IP Assignment (or an IP clause inside your contract).

Practical “Exit” Steps

Enforceability isn’t just about legal wording. It’s also about behaviour and process.

Your contracts (and your offboarding checklist) should support practical steps like:

• immediate removal of system access
• return of devices (if relevant)
• confirmation that confidential info has been deleted/returned
• reminding the person (in writing) of their post-termination obligations

This is especially important in a world where people can work remotely and take data with them without physically taking a folder from the office.

What Can You Do If A Former Worker Starts Competing Anyway?

If you suspect a former employee, contractor, or provider is competing in breach of contract, it’s tempting to send an angry message or post about it online.

Try not to. The early steps you take can have a big impact on how quickly (and cost-effectively) you can resolve things.

1. Check The Contract (And The Facts)

Start by confirming what your contract actually says:

• Is there a restraint clause?
• Is it a non-compete, non-solicitation, or non-dealing clause?
• When does it start and end?
• Who/what does it cover?

Then, gather what you actually know (not just rumours). For example, has a customer told you they were approached? Do you have screenshots or emails?

2. Consider Your Most Effective Legal “Hook”

Sometimes the cleanest claim isn’t “you competed”. It’s:

• they used confidential information
• they solicited clients
• they misrepresented affiliation with your business

Depending on the conduct, other laws may also be relevant. For example, misleading statements in marketing can trigger issues under the unfair business practices rules and the Fair Trading Act 1986.

3. Act Quickly (But Strategically)

Restraint disputes are time-sensitive. If you wait until the restraint period is almost over, even a strong clause may be less useful in practice.

That doesn’t mean you should rush into formal proceedings. Often, early lawyer-led negotiations and a carefully drafted letter can resolve the issue before it escalates.

4. Don’t Forget The “Internal Fix”

When a key person leaves and competes, it often exposes gaps in your systems.

It can be worth using the situation as a trigger to tighten:

• client ownership and account management processes
• privacy and access controls (who can export customer lists, who can access pricing)
• contracts across your team (not just the person who left)

If you collect and store customer data, make sure you’re handling it correctly under the Privacy Act 2020, including having an appropriate Privacy Policy and internal rules around access and retention.

Key Takeaways

• A non-compete agreement (restraint of trade clause) can be enforceable in New Zealand, but only if it’s reasonable and protects a legitimate business interest.
• For many businesses, a tailored non-solicitation or non-dealing clause is more practical (and often more enforceable) than a broad “no competition” clause.
• Restraint clauses should be customised based on the person’s role, what they had access to, and how your business actually competes (including online).
• Employees, contractors, and service providers create different legal risks, so your contracts should not be a one-size-fits-all template.
• Strong confidentiality and IP terms are usually just as important as the restraint clause, especially where someone can walk away with your systems, strategy, or customer data.
• If someone breaches a restraint, move quickly but strategically: check the contract, gather evidence, and get legal advice before the situation escalates.

If you’d like help putting the right non-compete clauses (and supporting confidentiality/IP protections) in place for your business, we’re here to help. You can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.