PROTECTING EMPLOYER INTERESTS VIA CONTRACTUAL CLAUSES – POINTS FOR EMPLOYERS

Employment contracts frequently contain provisions imposing restrictions on an employee after the end of employment.  Such provisions, often referred to as “Restraint of Trade”, aim to protect the rights of the employer, but issues often arise as to how wide the restraints can be – restraints which are too broad may be unenforceable.

Types of Restraint

Employers may seek to protect their legitimate interests by having suitable restraint clauses in a contract of employment issued to new employees or in new contracts for existing staff. For when a worker’s employment ends and the former employee seeks to start work with another employer or on their own behalf, the restraint clauses may seek to limit:

-          disclosure/use of information relating to the former employer’s activities

-          competition with the former employer

-          solicitation of the former employer’s customers

-          recruitment of personnel working for the former employer

all within a specified area and time; specified area and time limits are often expressed via cascading clauses – ‘for a period of six months, and if held unenforceable, for a period of three months’, etc. – such that if one limit is held to be too broad by a Court, a lesser limit is relied upon.

In determining whether restraints are enforceable, such as for example regarding restraint time limits and the geographical areas, the courts will look to the reasonableness of the restraints. The particular circumstances of the situation may be key here. The Courts seek to achieve a public policy balance of allowing an employer to protect its legitimate interests but also not unduly restricting a person’s ability to work and earn an income.

A recent case

In a recent matter Bridgeford & Associates represented an employer seeking to enforce various post-employment restraints against a former employee who was in breach of those restraints. The relevant restraints were set out in the former employee’s contract of employment, and included a bar to similar employment within a 30km radius. The NSW Supreme Court issued an injunction restraining the former employee from “Engaging in any employment, business, financial relationship or activity…” with a specified competitor, and also restraining the former employee from “Encouraging or persuading … stakeholders, including customers, suppliers, sponsors or partners to terminate their business or custom … “ with the former employer.

The need to act promptly

If you believe a former employee has breached a restraint which is a concern to your business, seek advice immediately because if you delay, a Court may see your delay as meaning it was not important to you.

Bridgeford & Associates can assist employers in advising on and drafting restraint provisions which seek to protect legitimate business interests, and which are expected to be enforceable, as well as court representation.

NB: The above points regarding restraint are general in nature, and are not exhaustive; they are not a substitute for legal advice. Concerned employers should seek specialised legal advice as to their specific situation.