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Excerpt from this article first published in Human Resources Magazine, Issue 144 - 22 January 2008
The Court of Appeal of the Supreme Court of Western Australia has upheld an appeal against a decision to grant an injunction to an employer to enforce a post employment restraint clause. The restraint aimed to prevent the former employee, Mr Smith, from working for a competitor for 6 months after his employment ended with his employer Nomad Modular Building Pty Ltd.
On appeal, Mr Smith argued that the decision was incorrect and that the restraint was not reasonable. The Court noted that Mr Smith had agreed to a similar restraint with his new employer and though it found that this was not determinative of whether the restraint was reasonable, it held it was a factor to be taken into account.
After considering the fact that Mr Smith in his senior role as general manager of manufacturing became aware of important strategic and operational confidential information; the confidential information was of significant value to the employer; the highly competitive nature of the market in which the employer operated; the scope and period of the restraint; and the fact the restraint would not affect Mr Smith’s capacity to earn an income in the restraint area or the restraint period; the Court held that the restraint clause protected a legitimate interest of the employer and was reasonable in the circumstances.
The Court also stated that it would be difficult for an employer to prove a breach of an employee’s obligation not to reveal confidential information to a new employer without restraining the employee from working for a competitor. Accordingly, the Court of Appeal found that the Supreme Court had not erred in its decision and it upheld the restraint which prevented Mr Smith from working for the competitor for 6 months.
Employers who wish to enforce restraints of trade should take action promptly to ensure their interests are protected.
As the Courts are only concerned with the objective effect of a restraint clause, employers should draft their restraints to include reasonable provisions with regards to the activity, area and duration of the restraint in order to ensure the restraint is aimed at protecting a legitimate business interest(s).
When recruiting new employees ascertain their post-employment obligations to their current employer before offering employment.
Beth-Marie Kitchener, Solicitor
