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


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