Restraint of Trade Clauses
A recent decision in DM v Employsure Pty Ltd; AK v Employsure Pty Ltd [2022] NSWCA 201 (11 October 2022) provides some clarity regarding the Courts interpretation of reasonableness of restraint of trade clauses in employment contracts.
Ironically, this decision is concerning a HR firm, and it does provide some great takeaways for all companies that have restraint of trade clauses in current employment contracts.
What is the most critical element an organisation should take out of decisions like this, is that it is a great reminder to update your to do list, review all restraint of trade clauses in your contracts.
Takeaways
1. Placing exclusive covenants in restraint clauses is reasonable, specifically when an employee commences employment with a new organisation while still employed with their current employer.
This decision provides some clarity in the use of exclusive restrictions in restraint clause of contracts, the circumstances are the key, not all situations are the same.
Many employers go down the path of using generic clauses and policies and fail to understand the critical need for these to be custom to their business and to the situation at hand.
2. It is possible for an employee who fails to adhere to a restraint clause, to be found to have breached their employment contract.
While again, facts are key here, this is another avenue that organisations should consider if an employee does in fact breach a restraint clause, has this breach caused them to also frustrate their employment contract.
3. Placing a lengthy period on a restraint of trade, may not be considered reasonable. In this decision, the employer placed a nine (9) month restriction of trade on the employee, which was considered harsh.
On appeal, this length of restriction was considered too long of a restraint. Critically this decision further discusses the importance of the facts and the importance that not all situations are the same. What was clear here is that the Court examined the employee knowledge and duties in relation to the information they were exposed to as part of their role.
Although not a groundbreaking decision, it is one for all organisations to consider when drafting these clauses. You should never treat all restraint clauses the same, each situation must be assessed on its own merits and facts.
If you currently have these clauses in your contracts, now would be a great time to review them. These clauses should be assessed to ensure the employee’s duties have not changed and their exposure or knowledge of confidential information has not changed since the restraint clause was instigated.
If you would like any assistance in reviewing your contracts, please do not hesitate to contact me.
Panel/Inhouse Services
At Salt Legal, we are always looking at ways to improve on the types of services we provide and the way in which we engage with our clients.
While exploring these, it was identified that many clients were keen to explore the idea subscription/panel/inhouse options of engagement. These types of arrangements allow clients a greater flexibility in engaging a law form and allows their employees to simply access legal assistance as required.
The way this works is simple, we agree on the length and duration of services you are seeking and a fixed and agreed fee, which can be invoiced weekly, monthly, yearly or task/matter based.
These services essentially place a lawyer in your business, one who develops an understanding of your business and a relationship with your employees.
If you think this might be something that interests you, please do not hesitate to contact us for further details.
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