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


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


    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