Resources: Blogs

There’s nothing holdin’ me back

Blogs
|

Post-employment restraint found go beyond what is enforceable

It is not common for employment contracts to contain restraint of trade clauses which seek to prevent departing employees from joining competitors or using or disclosing their former employer’s confidential information.

It is not common for employment contracts to contain restraint of trade clauses which seek to prevent departing employees from joining competitors or using or disclosing their former employer’s confidential information.

Enforcement of such clauses is often through the courts who will determine whether they are reasonable to protect the employer’s legitimate business interests. In United Petroleum Pty Ltd v Barrie [2022] FCA 818, the Federal Court of Australia declined to grant an application for an interim injunction seeking to prevent employee from joining a competitor on the basis the restraints were greater than what was necessary to protect the employer’s commercial interests.

Mr Barrie (the Employee) was employed by United Petroleum Pty Ltd (UP) in the position of Business Development Manager. UP operates a wholesale and retail fuel supply business.

In December 2021, the Employee resigned from UP and was to commence employment with another petroleum distribution and supply business, IOR Services Pty Ltd (IOR) in the position of Sales Manager, Aviation.  IOR also operates in the fuel supply sector.

The Employee’s employment contract with UP contained post-employment restraints in which the Employee agreed not to during the restraint period and in the restraint area:

  1. be engaged, involved or materially interested in any activity for or on behalf of a business, firm or undertaking of substantially the same kind as he performed during his employment with UP, in which use or disclosure of confidential information may be useful or advantageous to the business, firm, undertaking or to him; and
  2. carry on, advise, provide services to or be engaged, concerned or interested in or associated with or otherwise involved in any business activity that is competitive with any business carried on by UP.

The restraints period and restraint area had cascading provisions which reduced the length of time and area in which the restraints were to apply.

In January 2022, UP made an interlocutory application seeking an injunction against the Employee to enforce the post-employment restraints and to restrain the employee from breaching his duties under section 183 of the Corporations Act 2001 (Cth) (Corporations Act). As the employee provided undertakings to UP that he would not commence employment with IOR, the matter was adjourned until March 2022.

The interlocutory application came before Justice Snaden who refused to grant an injunction and dismissed UP’s application on the basis that both restraints extended beyond what was necessary to protect UP’s legitimate commercial interests.

In relation to (1), Justice Snaden noted that the clause was concerned with the advantage which might be obtained from possessing confidential information and sought to stop the employee from taking on roles whether or not the Employee was actually in possession of advantageous of confidential information. He considered that the clause in effect operated to restrict the Employee from taking on roles even where it would not put in jeopardy UP’s legitimate commercial interests. Accordingly, Justice Snaden found that the clause went beyond a legitimate and enforceable restraint.

Similarly in relation to (2) Justice Snaden considered the restraint to be too wide as it operated to restrain the Employee from being concerned or interested in any activity which was in competition with UP rather than protecting the legitimate commercial interests of UP. Again, Justice Snaden noted that this clause would restrict activities irrespective of whether it could cause harm to UP’s commercial interests and would mean that the Employee would be prevented from being employed in a role which was different to that which he performed with UP.

While Justice Snaden accepted that UP had established a case in relation to the duty not to improperly use information under the Corporations Act, he considered it to be weak.

Justice Snaden was also not satisfied that the balance of convenience favoured granting the interim injunction.

He noted that the injunction would have only stopped the Employee from commencing employment with IOR for another month and considered it “inherently unlikely” that the employee would be able to engage in conduct in that period which would adversely affect UP. Justice Snaden also took into consideration the Employee’s economic hardship, particularly he had given an undertaking not to start in his new role until the interlocutory application had been dealt with.

Lessons for employers

Generally, restraint of trade clauses are presumptively void and will only be enforceable where the obligations are reasonable between the parties and not against the public interest. The Courts will take into account the employee’s position, status, duties, access and possession of confidential information as well as the length and area in which the restraint is to apply. For this reason, post-employment restraints must be carefully drafted so that they do not go beyond what is reasonably necessary to protect the employer’s legitimate commercial interests.

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.

Similar articles

Hold the Line! - Restraints & Employment Contracts

Workplace Law's Managing Director, Athena Koelmeyer, will guide you through the legal minefield of post-employment restraints.

Read more...

WHS rights and adverse action

A slippery slope

Under the general protections provisions of the Fair Work Act 2009 (Cth) (FW Act), employers are prohibited from taking adverse action against an employee (such as dismissing them from employment) because they have a workplace right or because they have exercised or chosen not to exercise that right.

Read more...

A-League club facing adverse action claim in Court

A-League club facing adverse action claim in Court

It is sometimes forgotten that sporting clubs and organisations are employers who are also subject to workplace laws and regulations in relation to their employees.

Read more...

Employer successfully rebuts presumption in adverse action claim

Return to sender

An employer has successfully defended an adverse action claim brought by a former employee as the court was satisfied that the employee was not dismissed for a prohibited reason.

Read more...

Commission finds inappropriate social media use formed valid reason for dismissal

Message delivered

A recent decision of the Fair Work Commission has confirmed that an employee’s inappropriate use of social media group chats may form a valid reason for dismissal, particularly when matters relating to work are discussed.

Read more...

Commission confirms inappropriate touching constituted sexual harassment warranting summary dismissal

‘Scuse you

Sexual harassment in the workplace has been the subject of significant reform over the past few years, with an even greater onus on employers now to take proactive measures to minimise or eliminate the risk of sexual harassment in connection with work.

Read more...

Let's talk

please contact our directors to discuss how ouR expertise can help your business.

We're here to help

Contact Us
Let Workplace Law become your partner in Workplace Relations.

Sign up to receive the latest industry updates with commentary from the Workplace Law team direct to your inbox.