Employment Law: 23 March 2019
This blog explores the enforceability of employment restraint of trade clauses post-employment in Victoria.
Types of restraints may include;
Employers, if successful in their application to Court, can obtain an injunction preventing a former employee from doing X to prevent detriment being done to their business for a reasonable period of time.
A recent decision by Justice Dixon in the Victorian Supreme Court dealt with the test of applicable principles in enforcing restraints. In Epichealth Pty Ltd v Yang  VSC 516 , the Judge stated importantly that the principles applicable to the enforceability of contracts in restraint of trade are well settled. This should ultimately give a good degree of certainty to employers about what exactly they are up against legally if they choose to litigate in the post-employment period. The enforceability principles are as follows;
Didn't quite understand that? In a nutshell, this decision means that it is up to the employer to provide evidence to the Court in the form of special circumstances that would make issuing the restraint reasonable in the circumstances. The legitimate business interests of an employer, which may be the subject of protection, most often will include proprietary interests including; the employer's trade secrets, intellectual property, confidential information, goodwill - including customer base and connections. Skills that are ordinarily obtained and are reasonably relied upon throughout the course of the employees employment will be set aside by the Court in determining whether special circumstances truly exist. It is therefore imperative if you are operating in a highly confidential industry or niche market, for your employees contracts to contain restraint clauses. This is because the Courts are more likely to provide injunctive relief if you have something special that is unique to your business to that requires protection from future exploitation.
It is worth noting that mere competition (or the likelihood of) by a former employee against their former employer will not be enough in itself to warrant injunctive relief. A non-solicitation clause may prevent a former employee from approaching clients of the former employer, but this can only be for a reasonable period of time. As a general guide and depending on the facts this can range from anywhere between 3 months to three years. Clauses will often also include locations and distances which preclude former employees from competing in a particular area (again if reasonable). This is where a considerable amount of litigation originates as what is 'reasonable' will ultimately be dependent on the facts of each case with an objective analysis of the marketplace concerned.
The importance of protecting your business in the post-employment phase through carefully constructed restraint clauses is incredibly important. At the end of the day, all that you've worked for as an employer could potentially come in one door and leave straight out the other if diligent care isn't initially taken at the employment agreement phase!
The Workplace Relations Team at Aitken Partners can assist with drafting employment agreements and appropriate restraint clauses, tailored specifically for your business needs and requirements.