Employers find themselves confronted with numerous questions when
members of staff resign or are dismissed from employment. Can those
ex-employees work for competitors? Will they ‘poach’ clients? Will they
lure existing staff into leaving?
While employers feel comforted by the use of an employment restraint clause to
mitigate the risks mentioned above, a recent case in the Supreme Court
of New South Wales illustrates the danger of relying on these (oft)
broadly drafted clauses.
In Aussie Home Loans Ltd v X Inc Services Pty Ltd the first Plaintiff
(‘the Company’) attempted to enforce a restraint of trade clause against
a former employee (‘Mr K’) who had established two companies which
competed with the Company, and further sought to entice employees of the
Company to work for his companies.
The Company relied on a clause in Mr K’s contract which stated that he
could not, for a period of twelve months after the termination of his
employment, for any reason, solicit, interfere with or endeavour to
entice away any employee or contractor of the Company.
The Court noted that a restraint of this nature against employees can
be justified by reference to confidential information which an
ex-employee has about the relations between his former employer and its
current employees. The Court then made the following useful observations
in relation to this matter:
1. The restraint clause was not limited to loan writers in Victoria
that Mr K, as Victorian state manager, was responsible for but rather
all employees (and contractors) of the Company. This in itself caused
the restraint clause to be too broad and thus unenforceable.
2. The restraint clause not being limited to Victoria, where Mr K
was employed, also resulted in it being too broad and thus
unenforceable.
3. The restraint period of twelve months was too long given the
specific characteristics of loan writers and was thus unenforceable.
This case illustrates the need to tailor individual contracts to
specific employees rather than rely on standard form contracts that can
be obtained from various outlets.
To ensure that your company has an effective employment restraint clause or to discuss any
aspect of business law contact Shavin Silva or Mirella Angelino at Pace
Lawyers on (08) 8410 9294 or send an email via this form.