Employment Contracts can contain Restraint of Trade clauses which affect the post-employment obligations of employees to their former employer.
Employees who are contemplating new employment in a similar area either for a competitor or related industry should first review the status of their post-employment obligations.
Often new employers require that an incoming employee warrant that they are not bound by any restraints.
When reviewing whether or not a restraint is valid the starting point is Section 4(1) of the Restraint of Trade Act 1976 which provides:
“A restraint of trade is valid to the extent to which it is not against public policy, whether it is several terms or not”.
A basic interpretation of this section is that a person has the right to pursue their chosen profession in the area in which they live.
This is reflected in the Court’s interpretation of restraint as articulated in the judgment of Vanderall Products Ltd v McLeod [1956] RPC185:
“An employer is not entitled to be protected against mere competition, a legitimate interest in the employer which may be subject of protection by covenant are in the nature of proprietary interest”.
An employer is entitled to protect their property. Such property includes client lists, intellectual property and trade secrets.
A restraint however can still be valid in circumstances where the parties have agreed to the restraint in writing and it is reasonable given the seniority and public perception or “face of the business” that the employee held whilst employed.
This position was articulated in the judgment of Cactus Imaging Pty Ltd v Glen Peter [2006] NSW SC717:
“It is plain that employer’s customer connection is an interest which can support a reasonable restraint of trade. Such a restraint is legitimate if the employee has become vis-à-vis, the “human face” of the business, namely the person who represents the business to the customer.”
In these circumstances it is merely a matter of interpretation as to restraint, time and geographic area as to what is reasonable.
Everingham Solomons has the specialist knowledge to assist in the interpretation of reasonable enforceable restraints for either a potential exiting employee or drafting the necessary Employment Contracts for a prudent employer.
If you require assistance, please contact Everingham Solomons because Helping You is Our Business.
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