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Excerpt from this article first published in Human Resources Magazine, Issue 134 - 7 August 2007
The NSW Supreme Court has granted an injunction enforcing restraint clauses against a chief executive officer and chief technical officer.
Mr Ross and Mr Vogel commenced employment with IceTV as chief executive officer and chief technical officer in 2005. In early 2006, they entered into employment contracts, which contained confidentiality and non-solicitation clauses. In June 2006, as part of cost-cutting measures, Mr Ross and Mr Vogel's employment were terminated with three months' notice. Shortly after, the two executives founded Vogel Ross Pty Ltd and through this company, provided consultancy services to Mobilesoft Pty Ltd.
IceTV contended that the provision of services to Mobilesoft was a breach of each executive's respective contract of employment as Mr Ross and Mr Vogel had:
Evidence suggested that the two executives, while employed by IceTV, held discussions with Mobilesoft to sell an IceTV product and provide consultancy services. During his employment with IceTV Mr Ross had also sent Mobilesoft a proposal to merge the two companies. The Court considered the proposal to be in the best interests of Mobilesoft rather than IceTV.
During the case Mr Ross and Mr Vogel argued that Mobilesoft was not a competitor of IceTV but rather the two businesses were complementary to one another. The Court however found the two businesses were, in fact, competitors as they both aspired to provide the same service through the use of the same products.
The Court ultimately concluded that the two executives had breached their respective contracts of employment through their involvement with Mobilesoft.
It can be difficult to prevent a former employee engaging with competitors or customers. To enhance the prospect of successfully restraining a former employee, employers should ensure that properly drafted post-employment restraint clauses are included in contracts of employment.
Employers who are aware of former employees engaging with competitors or customers should consider taking immediate action to restrain them. Any delay in taking action could, of itself, result in a Court refusing to grant an injunction against the former employee.
Jason Donnelly
Special Counsel
