In a recent case brought before the NSW Supreme Court DP World’s (DPW) six-month restraint of trade period on their Operations Manager was deemed to be reasonable when the former employee gave three-months’ notice before beginning employment with a competitor.
On April 27, DPW’s Operations Manager accepted a position with their direct competitor, Asciano. DPW accepted the manager’s resignation and three-months’ notice and placed him on gardening leave until July 28, no longer requiring him to attend work during his notice period. The company also required the former employee to be on an additional three-month “post-employment restraint” as per clause 19 of his contract, making him unable to perform work for any competitor during this period.
The Operations Manager believed the six-month period to be unreasonable and believed that the three-month restraint period was to begin on April 28 when he gave his notice and resigned. Justice Richard White disagreed with the Operations Manager as the DPW’s decision to place the former employee on gardening leave meant he was still an employee of the company and was required to remain available for work until July 28. Therefore, as the contract of employment did not end until July 28, DPW was approved by the Judge to initiate the restraint of trade from this date until October 27.
The Judge deemed a six-month restraint to be “reasonable and necessary to protect DPW’s legitimate interests in preserving its confidential information” given the nature of the operations manager’s position, his access to information and the small number of competitors in the area. Judge White believed the company could suffer “irreparable harm if its confidential information were disclosed” to its competitor, wittingly or unwittingly.
DPW made an additional undertaking for the former employee not to solicit or accept approaches of 16 key customers and 2 suppliers for the competitor business and not to interfere with current and future relationships between DPW’s customers, suppliers, group employees, and contractors. However, Justice White deemed this unreasonable as it “did not meet the need for restraint on employment by a competitor”. Justice White further clarified that a restraint of trade was not to shield employers from competition, rather to protect them from disclosure of confidential information.
Restraint of trade clauses in employment contracts have enormous benefits for employers that employ highly sought after and senior staff.
If your organisation would like to introduce “restraint of trade” clauses to your contracts, contact the National Retail Association Hotline and speak to one of our Workplace Advisors on 1800 RETAIL (738 245) where we can further assist you in this process.