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Excerpt from this article first published in Human Resources Magazine, Issue 153 - 28 May 2008
In a recent case the Supreme Court of Victoria determined that clauses in a former employee’s contract that sought to restrain his post employment conduct were unenforceable as they were too wide and extended for an unreasonably long period of time.
Mr Hillard worked as the managing director of information management for BearingPoint. He was a highly regarded leader in his field who regularly achieved an ‘exceeds expectations’ performance assessment.
Mr Hillard’s employment contract stated that, following the termination of his employment with BearingPoint, he was to be restrained for 12 months from working for a competitor; soliciting business from any person, firm or company who he had performed information management services for in the two years preceding the termination; and soliciting BearingPoint employees.
The contract also included a provision that Mr Hillard accepted that the post employment restraints were reasonable.
In December 2007, Mr Hillard advised BearingPoint of his intent to commence employment with a competitor, Deloitte Touche Tohmatsu. On 17 December 2007, BearingPoint handed Mr Hillard a letter telling him that his employment would end on 18 June 2008.
BearingPoint told Mr Hillard that he was not required to attend work during his 180 day notice period. This is often referred to as putting the employee on ‘gardening leave’.
BearingPoint also sought the assistance of the court to prevent Mr Hillard from commencing work for its competitor in accordance with the terms of its contract with Mr Hillard.
The Court found that it was legitimate to put Mr Hillard on gardening leave. However, the Court considered that the provision in the contract restraining Mr Hillard from working with a competitor, or from contacting BearingPoint clients for 12 months after the end of the gardening leave, was unreasonable because the period was too long. The Court considered that a 12 month restriction was a pure attempt to prevent competition.
The Court held that the restrictions on solicitation were too broad as they included soliciting clients other than those serviced by Mr Hillard. The restriction on soliciting BearingPoint employees for 12 months was also held to be too long. It was held that the ‘admission’ by Mr Hillard in the contract that he agreed that the restraint was reasonable did not help BearingPoint’s case, as the assessment of the reasonableness of restraints is a matter for the courts.
Employers should avoid seeking post employment restraints where the activities sought to be restrained are too broadly defined, the geographic area is too wide, or the period longer than necessary to re-establish relevant relationships.
The first step in creating enforceable restraints is to identify accurately what the legitimate interests of the employer are and how long it will really take to shore up those interests following the departure of an employee.
Having regard to the risk that post employment restraints may not be enforceable, employers should consider whether to include in employment contracts more extended notice periods with the ability to put employees on gardening leave.
Restraint clauses should be drafted with less alternatives so if a Court strikes out a longer or broader restraint, a shorter one will still remain.
Sharlene Wellard Senior Associate |
Michael Whitbread Lawyer |
