Employee Restraint Clauses and why the devil is in the detail

As an employer and business owner, you know the value of your internal know-how and client database. Put simply, your business couldn’t function without it. And to protect that valuable property from errant ex-employees, you have in place a restraint of trade clause in all employment agreements you issue. So you’re protected, right?

Sadly, that’s not necessarily the case, and whether that restraint would be upheld if challenged in court is dependent on the precise wording and application of that one little clause. As these recent cases show, when it comes to enforcing restraint clauses against ex-employees, the devil is often in the detail.

Case Law

In the case of Sportsbet Pty Ltd v Carpanini & Anor [2014] VSC 166, Sportsbet sought to restrain a former Client Services Manager, Ms Carpanini, from “providing services to, participating in, being interested in, assisting with or otherwise being directly or indirectly involved in, engaging in, being concerned or interested in a Restricted Business in the Geographical Area, in any capacity for a period of 6 months after termination of employment”

Here, the court would not order an interlocutory injunction, holding that it was strongly arguable that the restraint was too wide to be enforceable. As the court noted, the clause essentially meant the defendant in this case “could not take a job as a cleaner with a competitor, for instance. Likewise, she would be prevented from even buying shares in a competitor such as Tabcorp.” 

The lesson to be learned here for employers is that restraints can be too broad in their application and, if this is the case, it is likely the entire clause will be deemed void.

In another recent case heard in the Victorian Supreme Court, Wallis Nominees (Computing), a software consultancy business, had employed Pickett as a software consultant who was contracted out to clients in various IT roles. During his employment with Wallis, Pickett was contracted to Grocon on a full-time basis. He then resigned from his position at Wallis to take up a position with Grocon. His employment contract with Wallis contained a 12 month post-employment restraint precluding him from providing services to any of its (Wallis’) customers to whom Wallis had provided certain services.

The Court held that the covenant went further than was acceptable, in that it prohibited Pickett from providing services to clients of Wallis to whom he (Pickett) had not actually provided services and, furthermore, the duration of the restraint at 12 months was unreasonable because it wouldn’t take Wallis that long to replace Pickett with someone to establish the relationship with the client.

Conclusion

The lesson? Employers should be very wary of using a ‘one size fits all’ restraint for all employees, and the restraint should be customised on a case-by-case basis, dependent on the nature of the roll, level of client contact, seniority, and restrained activities. To get fixed-fee legal advice from one of our employment lawyers, get in touch today!