What Are The Types Of Restraint Clauses? (2026 Updated)

When you’re building (or buying) a business, it’s completely normal to worry about one thing in particular: what happens if someone takes your customers, staff, or confidential know-how and uses it to compete against you?

That’s where restraint clauses come in. They’re a common feature of commercial contracts and employment arrangements in New Zealand, but they can also be misunderstood (and sometimes misused).

This guide is updated to reflect current expectations and practical drafting trends we’re seeing in New Zealand, so you can feel confident you’re working with information that’s up to date.

Below, we’ll break down the main types of restraint clauses, where they appear, what makes them more (or less) enforceable, and how to use them in a way that protects your business without creating unnecessary risk.

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

A restraint clause is a contract term that limits what a person can do after their relationship with your business ends.

In practice, restraints are used to protect legitimate business interests such as:

• Customer and client relationships (especially where the person had direct contact and influence)
• Confidential information (pricing, strategy, supplier terms, processes, source lists, marketing plans)
• Trade connections (relationships with suppliers, referral partners, or key industry contacts)
• Goodwill (the “value” of your business reputation and customer base, particularly in a sale)
• Workforce stability (so a departing staff member doesn’t take your team with them)

Restraint clauses aren’t about “punishing” someone for leaving. They’re usually about giving your business a fair chance to protect what it has built.

In New Zealand, restraints are not automatically enforceable. Courts often start from the position that restraints can be problematic if they unreasonably restrict trade. The general idea is:

• If the restraint is reasonable and protects a legitimate interest, it may be enforceable.
• If it’s too broad (time, area, activities), it may be unenforceable (or only enforceable in a narrowed form, depending on drafting).

That’s why getting the clause right matters just as much as having it there in the first place.

Where Do Restraint Clauses Usually Appear?

You’ll most commonly see restraint clauses in:

• Employment agreements (especially for senior employees, sales roles, or client-facing positions)
• Contractor agreements (where a contractor can build relationships with your clients and learn sensitive information)
• Business sale agreements (to stop a seller from opening up next door and taking the goodwill they just sold)
• Shareholder/founder arrangements (to manage exit risk and protect the company’s value)
• Franchise and distribution arrangements (where the operator learns the system and customer base)

The context matters because what is “reasonable” often depends on the nature of the relationship. For example, a restraint in a business sale can sometimes go further than one in a standard employment relationship, because the buyer is paying for the goodwill being protected.

If you’re putting restraints into an employment relationship, it also helps to make sure your core employment documentation is solid and consistent, like your Employment Contract.

Type 1: Non-Compete Clauses

A non-compete clause (sometimes called a “restraint of trade” clause) limits a person from working in or starting a competing business for a certain time and within a certain area after leaving.

What A Non-Compete Usually Restricts

• Starting a competing business
• Working for a competitor (including as an employee, contractor, consultant, or even investor in some cases)
• Providing services that are considered “competitive” with your business

When Non-Competes Make Sense

Non-competes are often the hardest type of restraint to enforce, because they can significantly limit someone’s ability to earn a living.

They’re more likely to be considered reasonable where:

• The person had access to genuinely sensitive confidential information (not just general knowledge)
• The person was a key relationship holder for high-value clients
• The restraint period is relatively short and tied to how long it would realistically take to protect goodwill
• The scope of “competition” is clearly defined (not “anything in the industry”)

Common Drafting Mistakes

• Overly broad industry definitions (e.g. “any business similar to ours” without detail)
• Unreasonable geographic areas (e.g. “all of New Zealand” where the role was local)
• Long restraint periods without justification
• Using a non-compete where another restraint would do (like a non-solicit)

If your real concern is “don’t take our clients” rather than “don’t work anywhere else”, a non-solicitation clause is often a more targeted (and sometimes more defensible) option.

For context, restraints like these are commonly bundled into a broader Non-Compete Agreement approach, but they still need to be tailored to the specific relationship and risk.

Type 2: Non-Solicitation Of Customers And Clients

A non-solicitation clause stops a person from approaching (or trying to win business from) your customers or clients after the relationship ends.

This is one of the most common restraints in New Zealand business contracts, and for many businesses, it’s the most practical type of restraint because it focuses on the asset you’re actually protecting: the customer relationship.

What “Solicit” Can Mean

“Solicit” typically covers conduct like:

• Calling, messaging, emailing, or visiting customers to pitch services
• Inviting clients to switch providers
• Targeting customers with personalised offers based on inside knowledge

Depending on the wording, it might also cover indirect actions (such as using another person to approach the client for them).

Why The Details Matter

Non-solicitation clauses often turn on definitions. For example:

• Who is a “customer”? (Current customers only? Customers in the last 6 or 12 months?)
• What counts as “approach” or “contact”?
• Does it apply to customers the person personally dealt with, or all customers?

If your clause tries to cover every possible client the business has ever had, it may be harder to justify as reasonable. But if it targets customers the person had real influence over (or had access to details about), it’s often easier to defend.

Be Careful With “Non-Dealing” Clauses

Some restraints go further than non-solicitation and become a “non-dealing” restraint (meaning the person can’t do business with clients even if the client approaches them first).

Non-dealing clauses can sometimes be enforceable, but they’re typically more restrictive, so you need stronger justification and careful drafting.

Type 3: Non-Poaching (Non-Solicitation Of Employees)

A non-poaching clause (also called “non-solicitation of employees”) limits a departing person from encouraging your staff to leave and join them (or join a competitor).

If you’ve ever had that sinking feeling that a key staff member could leave and bring half the team with them, you’re not alone. For small businesses especially, losing a few people at once can be genuinely disruptive.

What Non-Poaching Clauses Usually Cover

• Approaching your employees to recruit them
• Inducing or encouraging staff to resign
• Hiring your staff (sometimes this is drafted as non-solicit only, sometimes non-hire)

What Makes These Clauses More Likely To Be Reasonable?

• They’re limited to staff the person worked with (or had management influence over)
• The restraint period is proportionate (often shorter than a customer restraint)
• They don’t block normal “general advertising” for roles (depending on drafting)

Non-poaching restraints are particularly relevant where someone is setting up a competing business, or where a manager has strong influence over employees.

This kind of restraint often sits alongside good internal governance and clear expectations, which can also be supported through documents like a Workplace Policy (so your team knows what’s confidential and what behaviour is expected during and after employment).

Type 4: Confidentiality Clauses (And “Protective” Clauses That Work With Restraints)

Strictly speaking, confidentiality isn’t always described as a “restraint clause” in the same way as a non-compete, but it often functions like one in practice.

A strong confidentiality clause can stop someone from using or disclosing information that would allow them to compete unfairly.

What Counts As Confidential Information?

For most businesses, confidential information can include:

• Pricing structures and quotes
• Customer lists and customer preferences
• Supplier terms and margins
• Marketing plans and strategy
• Training materials and internal processes
• Software code, product roadmaps, or technical documentation

The key is to define confidentiality in a way that matches your business. If you define it too narrowly, you may miss what actually matters. If you define it too broadly (like “everything”), it may be vague and harder to rely on.

Confidentiality obligations are commonly set out in a standalone Non-Disclosure Agreement or built into an employment/contractor arrangement.

Other Clauses That Support Restraints

Restraints tend to work best when the rest of your agreement is consistent. Depending on your situation, it can help to include clauses covering:

• Return of property (laptops, access cards, documents, client files)
• Intellectual property ownership (so work created during the relationship stays with the business)
• Notice periods and handover obligations
• Garden leave (in some employment contexts) to reduce immediate competitive risk during notice

If you’re engaging contractors, make sure the underlying structure is right from day one with an appropriate Contractor vs Subcontractor assessment, because a restraint drafted for the wrong relationship can create problems quickly.

How Do You Make A Restraint Clause More Enforceable In New Zealand?

There’s no “magic wording” that guarantees enforceability. But there are practical steps you can take to make your restraint clause more defensible and commercially sensible.

1) Be Clear About The Legitimate Interest You’re Protecting

Ask yourself:

• Are you protecting client relationships?
• Are you protecting confidential information?
• Are you protecting goodwill from a business sale?

If you can’t articulate the interest, it’s a sign the restraint may be too broad (or unnecessary).

2) Keep The Duration Reasonable

Restraints are typically time-limited. A reasonable period depends on the context, but the general principle is: the restraint should last no longer than necessary to protect the interest.

For example, if your sales cycle is short and customers switch quickly, a long restraint may be harder to justify. If customer relationships are “sticky” and built over years, a longer period may be more defensible (but still needs care).

3) Keep The Geographic Scope Tied To Reality

If your business operates locally, a nationwide restraint might raise eyebrows.

If your business is online, geography can still matter, but you need to think carefully about what “area” means in practice (and whether a customer-based restraint is more appropriate than a location-based restraint).

4) Limit The Activities Being Restrained

Instead of banning someone from “working in the industry”, consider limiting the restraint to:

• specific services the person delivered
• specific categories of customers they dealt with
• specific competitive conduct (like soliciting your clients)

The more tailored it is, the more likely it is to look fair and reasonable.

5) Use “Cascading” Options Carefully

You may have seen restraint clauses written with multiple options (for example, 3 different time periods and 3 different geographic areas), with the intention that if one combination is too broad, a narrower option might still stand.

This can be a useful drafting technique in some situations, but it needs to be drafted properly. Poorly drafted cascading clauses can become confusing or unenforceable.

6) Make Sure The Contract As A Whole Is Sound

Even a well-drafted restraint can become difficult to enforce if the broader contract is inconsistent, unclear, or doesn’t reflect what’s actually happening in the relationship.

For example, if you’re relying on restraints in a high-trust business relationship (like a co-founder or key investor scenario), you’ll often want to align your restraints with the broader governance and exit rules in documents like a Shareholders Agreement.

And if your business has multiple entities or is growing quickly, foundational documents like a Company Constitution can help make sure the “rules of the game” are clear from the beginning.

Key Takeaways

• Restraint clauses are contract terms that limit what someone can do after leaving your business, and they’re commonly used to protect customers, confidential information, goodwill, and staff stability.
• The main types of restraint clauses are non-compete clauses, non-solicitation of customers, non-poaching of employees, and confidentiality obligations (which often work alongside restraints).
• Non-compete clauses are often the most difficult to enforce, so it’s usually safer to consider more targeted restraints (like client non-solicitation) where they suit your risk.
• Restraint clauses are more likely to be enforceable when they’re tailored to a real business risk, limited in time, reasonable in geographic scope, and specific about what conduct is restricted.
• Restraints work best when your underlying agreements are consistent and professionally drafted, rather than relying on generic templates that don’t reflect your business.

If you’d like help drafting or reviewing restraint clauses (for employees, contractors, founders, or a business sale), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.