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Restraint not Effective

Tuesday, April 10, 2012

Justice Sifris of the Supreme Court of Victoria (‘the Court’) has allowed a former employee of a company (‘the Employer’) to work for a previous client of the Employer despite a twelve (12) month restraint clause in the employee’s employment contract (‘the Agreement’). The Agreement stated that for a period of twelve (12) months after the employment ended, the Employee would not provide services or accept employment with any client of the Employer to whom the employee dealt with or had cause to be in contact with during his employment with the Employer (‘the Restraint’).

In February 2011, the employee began to provide services to a client of the Employer (‘the Client’) on a full-time basis. In November 2011, the Client went through a restructure, creating a new position. In December 2011, the Client approached the employee to determine his interest in filling the new position as an employee of the Client and the Employee advised the Client that he was interested.

 In January 2012, the Employee tendered his resignation to the Employer advising he would be taking the new position with the Client. The Employer advised the Employee that this would be in breach of the Restraint.

 In interpreting the Restraint, Justice Sifris held the Restraintpurports to operate to prohibit [the Employee] from providing any of the services normally provided by [the Employer] at the time [the Employee] finished working there to the clients that [the Employee] had actual contact with while [with the Employer] or had demonstrated reasons to be in contact with.”

 The Employer submitted the Restraint was “confined and did not go further than protecting the legitimate interests” of the Employer. Conversely, the Employee submitted that there was no legitimate interest that required protection.

 In determining whether the Restraint was valid and enforceable, Justice Sifris noted that “something more than exposure to or interaction with the customer or client by the employee is required…This would include personal or special knowledge (which may include confidential information) of the client and a significant degree of influence. It should be stressed that the risk of exploitation of such knowledge and connection, which the covenant seeks to protect, must be assessed at the date of the agreement.

 Justice Sifris held the Restraint was “void and unenforceable” finding the nature of the relationship between the Employer, employee and the Client did not place the employee in a “special category that would create the risk of exploitation that required protection by covenant…[the Employee] was not intended to be…the human face of [the Employer] or have the relevant and necessary control over the business of the client. His consultancy position… was not intended or contemplated to provide the basis for the development of a special relationship with the client of the kind that would provide the basis or foundation for later competition or exploitation.”    

This case highlights the importance of having properly drafted restraint clauses within employment contracts and confirms the issues that will be considered when a Court considers whether a restraint is enforceable. If you would like advice on post employment restraints, please contact Nick Stevens or Liza Isho.

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.




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