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Two-year Restraint of Trade Clause found to be Reasonable

Monday, May 28, 2012

A recent case in the Federal Court of Australia has found a two-year employment restraint clause to be valid and reasonable.  The employee commenced employment in 2005 with a Human Resources strategy and consulting business, giving two months written notice in July 2011 as per an Executive Service Agreement (‘Employment Agreement’).  Justice Buchanan heard the employee was considered as extremely important to the business, with the employee’s skills of attracting clients akin to “sprinkling fairy dust”.  The employee was “the human face of [the business], who represented [the business] to the customer”.  The Employment Agreement was finalised some months after the employee commenced employment, with contention arising over certain terms, including the length of time the restraint clause would cover.  The employee originally proposed a six month unpaid period.  However the final Employment Agreement was for a term of two years, with all but the first three months paid.  The Employment Agreement also included a clause allowing the employer 14 days to decide whether they wanted the restraint to operate.  This allowed an opportunity for the employer to assess the businesses ability to provide pay over the period and any potential downturn in trade if the clause was not in operation.  The employer elected to enforce the clause.

The employee argued the terms of “Restricted Business” with the phrase “similar to” amounted to an “unlimited global restraint”.  However Justice Buchanan disagreed, commenting that it was reasonable and satisfied s 4(1) of the Restraints of Trade Act 1976 (NSW), which states a restraint of trade clause is valid “to the extent to which it is not against public policy”.  He found in favour of the two-year restraint period for a number of reasons:

  • The restraint clause was negotiated separately, accompanied by specific provisions;
  • Owing to the specific provisions, the clause was clearly of "valuable consideration";
  • No other executive at the business had a similar arrangement; and
  • The two-year period shadowed the businesses cycle whereby clients generally signed two or three year contracts.

 

Author: Nick Stevens, Principal, Stevens & Associates Lawyers, an AIIA.biz expert and one of the Panel of Expert Bloggers.

This article provides general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Stevens & Associates Lawyers is a boutique industrial relations and employment law firm. It has liability limited by a scheme approved under Professional Standards Legislation.


    Employee sacked while on sick leave wins compensation

    Wednesday, May 23, 2012
    A recent case in the Federal Magistrates Court of Australia (‘the Court’) has found than an employer unfairly dismissed an employee while she was on sick leave.

    As the employee’s salary was over the unfair dismissal threshold of $118,100, the employee commenced proceedings under s 352 of the Fair Work Act 2009 (Cth) (‘the Act’). This section prohibits an employer from dismissing an employee for being “temporarily absent from work due to illness or injury” of a type allowed pursuant the Act. An acceptable illness or injury is that which can be proven by evidence, such as a medical certificate.

    The employee had fallen ill and had taken sick leave in compliance with the terms of her employment contract and notified the employer that she would be taking a week of sick leave, and would produce a medical certificate at her first available opportunity. Two days into her sick leave, and before she was able to do provide a medical certificate, the employer summarily dismissed her. Among other reasons, the termination letter stated that the employee “had failed” to keep the employer aware of their “absences”.

    The employer had also refused to provide one month’s written notice as required in the employment contract, alleging that the employee had engaged in either “serious misconduct or wilful neglect”, or another act capable of allowing termination under the employment contract the action of dismissing the employee was unrelated to the employee’s lawful sick leave, or that the conduct of the employee amounted to valid reasons to summarily terminate her employment. Federal Magistrate Smith said that the employer’s “decision was poorly thought through” and the act of summary dismissal itself was “devoid of objective reasonableness and fairness” to the employee.

    The Court ordered the employer be fined $20,000, pay compensation to the employee of more than $37,000 and cover the employee’s legal costs of $57,000.

    For advice on sick leave provisions or termination of employment contact Nick Stevens or Liza Isho.

    Author: Nick Stevens, Principal, Stevens & Associates Lawyers, an AIIA.biz expert and one of the Panel of Expert Bloggers.

    This article provides general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Stevens & Associates Lawyers is a boutique industrial relations and employment law firm. It has liability limited by a scheme approved under Professional Standards Legislation.

    Payment of leave loading upon termination questioned

    Friday, May 18, 2012
    Commissioner Peter Hampton of Fair Work Australia (‘FWA’) has approved an enterprise agreement that does not provide for the payment of leave loading upon termination. This decision is noteworthy as the Fair Work Ombudsman has previously specified that annual leave loading is payable in these circumstances.

    The issue before FWA concerned whether the exclusion of annual leave loading in termination payments were a contravention of s 55 of the Fair Work Act 2009 (Cth) (‘the Act’).

    s 55 stipulates that no award or enterprise agreement can exclude the National Employment Standards (‘NES’). The NES constitute ten minimum criteria, such as maximum weekly hours and parental leave, which must be provided to every employee.

    Commissioner Hampton analysed the NES alongside s 90(2) of the Act, which states that a terminated employee with a remaining period of untaken annual leave must be paid the same as they would have been entitled to had they taken that leave during employment. Commissioner Hampton approved the agreement, finding that the NES did not contain an express provision requiring the payment of annual leave loading upon termination. However, as Commissioner Hampton felt that he had not “decisively” settled the matter, the issue was not “comprehensively resolved”. In his judgment, Commissioner Hampton noted that the decision to approve the agreement was complicated by the failure of the relevant unions to provide submissions on the leave issue.

    For advice or assistance with drafting enterprise agreements contact Nick Stevens or Liza Isho

    Author: Nick Stevens, Principal, Stevens & Associates Lawyers, an AIIA.biz expert and one of the Panel of Expert Bloggers.

    This article provides general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Stevens & Associates Lawyers is a boutique industrial relations and employment law firm. It has liability limited by a scheme approved under Professional Standards Legislation.



    Changes to Super - Federal Budget

    Friday, May 11, 2012

    There were two main changes to superannuation announced in the federal budget on 8 May 2012. The primary groups affected are people aged 50 or over, and those (of any age) earning $300,000 or more.

    Earning more than $300,000

    The government has announced an increase to superannuation contribution tax for people earning more than $300,000.  This tax will now be 30% rather than 15% for concessional contributions.  However this is still lower than the 46.5% tax that people at this income level would pay if the super contribution was paid as salary.  This additional tax only applies to concessional contributions.  Concessional contributions include compulsory employer contributions, salary sacrifice amounts, and contributions made by self employed people for which they claim a tax deduction. Non concessional contributions are still tax free if within the relevant cap limits. The tax on superannuation fund earnings is still 0 - 15%. Most withdrawals from super are still tax free for people once they reach 60.

    What are the implications?

    • The tax advantage of concessional superannuation contributions is slightly reduced for people earning more than $300,000, but it is still more tax advantaged than taking the income as salary. In practise most salaried employees will have limited options to vary their concessional contributions in response to this measure, as they will be mostly compulsory employer contributions. Self employed people will have greater options to adjust their situation if  necessary.

    • The $300,000 threshold includes actual and notional income from a wide variety of sources, including the proceeds of some property and share sales. Therefore this change to superannuation tax may be a consideration when planning the timing and tax effectiveness of asset sales.

    Aged 50 or Over

    Up until the end of FY 2011-12, people aged 50 or over could make $50,000 of concessional contributions, whereas the under 50s could only make $25,000 in concessional contributions. From the 2012-13 financial year, everyone will be back to the $25,000 limit. The government had previously flagged an extension to the $50,000 limit for some of the over 50s, depending on their total super balance. However this proposal has been deferred for two years. 

    What are the implications?

    • People aged 50 or over looking to make large concessional contributions to super will have greatly reduced opportunities to do so after 30 June 2012. Seek advice quickly if you are in this category.

    • People aged 50 or over with salary sacrifice arrangements in place that utilise the full concessional contribution caps applying in 2011-12, will need to review those arrangements for 2012-13 if they want to avoid excess contributions tax.

    • Sophisticated super strategies such as “Transition to Retirement” will still be advantageous to many people aged 55 or over, but existing arrangements should be reviewed to take account of the lower caps applying from 2012-13.

    If you want further information on this topic or related topics please call our expert, David Scott.

    Author: David Scott, Principal, ICT Wealth Financial Planners, AIIA.biz Expert.

    ICT Wealth is a boutique financial planning firm that has no ownership by any product manufacturer. We choose to be licensed through AMP Financial Planning. The investment managers and insurers we use include a broad range of leading names and specialist stockpickers.

    Disclaimer:  ICT Wealth Pty Ltd, ABN 98 138 155 852, is an authorised representative of AMP Financial Planning Pty Limited (Australian Financial Services Licence No. 232706. Information contained in this article is of a general nature only and does not take into account your personal objectives, financial situation or needs. Accordingly you should consider your own objectives, financial situation and needs before acting on this information.


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