Home : About Us :commun-iT blog  

commun-iT blog

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.




Trackback Link
Post has no trackbacks.

Subscribe to the commun-iT blog RSS

 Recent Posts


Queensland State Government NES Confidential information award Living Away from Home Allowance www.aiia.biz flood insurance Matthew Karpanen patent Peter Nolle IT Law Nick Stevens Contracting Information gathering Board of Taxation government procurement employment law SME Professional Idemnity restraint of trade clause contractual obligations warranties ICT capability study small business owners personal services income IT Forum Gold Coast breach of implied terms Superannuation Guarantee employers employment agreements PAYG Compulsory Employer Superannuation National Employment Standards Stevens and Associates Fair Work Ombudsman company tax Capability Study 2011 Consumer Law distribution agreement Fair Work Australia ATO Fringe Benefit Insurance Advisernet 2020 Civil Aviation Regulations GST employment contract IAAS selling your business Employment Maat Solutions moral right individuals Division 7A David Scott Agreements Australian Information Industry Assocation personal income tax Free Basic Listing compliance Tours benchmarking breach of employment contract Discounted Deals restraint Greg Pearce Greg Tomkins Clerical and Administrative Employees (State) Award Hotel warranty against defects ABN Mike Pym Benefits Australian Business Register confidentiality clause IP managed services Financial Planning Panel of Expert Bloggers 12 percent open source reseller Procure IT AIIA.biz Innovation Australia: AusIndustry Fair Work Regulations adverse action copyright Regulation 90 superannuation ITFGC Payment Summaries Australian Workplace Agreements termination Software R&D Tax Corporate and Commercial Law Survey data sick leave eServices industrial action dividends Balance Professional Services fines Insurance Supply Management Fee small business Fair Work Act indemnity Win an iPad 2 Treadstone Tax rates IT Contracts Law unfair dismissal employee broker Software Research and Development Tax, Guide director duties leave loading Tax unpaid work term deposit IT capability directory Fair Work Commission IT Professionals Independent fraudulent refunds Centennial Financial Services AUSkey ASIC SAAS underpayment fuel tax credits loans tax law IT Lawyer Peta Maloney Advanced Findings enterprise agreement Sham Compliance Program Travel Michael Blumenstein Contractor Pym's Technology Lawyers Federal Court of Australia natural disaster PAAS Government Grants Databases Research and Development Tax Credit Gold Coast ICT Forum Falsify AIIA discounted travel Alex Bodnar R&D tax Credit Research and Development Tax withholding rates


    Our Expert Bloggers

    Mike Pym

    Mike is an entrepreneur and lawyer who leads two SMEs, one in the IT software industry, and a firm of lawyers specialising in IT law.

    Peta Maloney

    Company and commercial law, shareholder agreements, constitutions, directors’ duties, setting up companies, IT contracts, outsourcing, government procurement and privacy.

    Peter Nolle

    Government Grants from start up to export ready

    Alex Bodnar

    General insurance advisory for commercial & industrial risks, 
    Information Technology & Telecommunication exposures. 

    David Scott

    Investments, Superannuation,
    Life Insurance, Income Protection Insurance, Key Person Insurance, Debt Management, Gearing,
    Retirement Planning

    Mike Pym

    IT contracts, government procurement of IT, distribution agreements, outsourcing, contract management & dispute resolution.

    Nick Stevens

    Enterprise Agreements,
    Employment Contracts,
    Unfair Dismissal, EEO, 
    Workplace Surveillance & Privacy, OH&S

    Industry Associations



    Maat Solutions Pty Ltd
    Level 6, 60 Pitt Street
    Sydney NSW Australia

    T: +61 (02) 9247 9459
    F: +61 (02) 9247 9550

    Captcha Image