The value of post-employment restraints

It’s a common misconception that a post-employment restraint in an employee’s contract of employment isn’t worth the paper it’s written on. But what if you don’t include one? What are the consequences?

In a recent case, the Supreme Court of New South Wales refused to grant an injunction to prevent a former sales manager from setting up a competing agency using client names and email addresses he copied from his former employer.

It’s a situation that many real estate agency owners find themselves in when an employee leaves the business to either work for a competitor or start their own competing agency.

In this particular case, the employer sought an injunction against the ex-employee sales agent to prevent them from communicating or dealing with the agency’s clients. Unfortunately, there was no restraint of trade in the ex-employee’s contract of employment. Therefore, the agency only had the confidentiality clause to fall back on when attempting to restrain the ex-employee’s conduct.

The judge indicated that if the Supreme Court granted an injunction it would, in effect, “be a backdoor way of achieving a restraint of trade to prevent [the ex-employee] from competing with [the agency] in circumstances where it did not have a contractual relationship on which it could rely.”

The judge also observed that it was necessary to identify the confidential information that should be protected, but noted that the names and contact details of the agency’s clients were freely available on the internet. The judge didn’t consider the information to be confidential at all and added that, in any case, it was arguable that the ex-employee could have memorised the client contact details after years of sending “countless emails”.

While the identity of the agency’s clients could be considered confidential information, this was not grounds for imposing an injunction in the present case because the ex-employee was not disclosing it to anyone.

The judge also considered the adverse effect granting the injunction would have on the ex-employee, who testified that his new business was his only source of income and that he’d taken out finance to help set up the new agency. The judge accepted that blanket injunction would shut down the ex-employee’s new business in circumstances where his ex-employer had no contractual right to restrain his activities.

The key takeaway

While it must be conceded that post-employment restraints have limited legal value, these restraints can play a vital role in protecting the goodwill of business when operational employees depart with nefarious intentions.

Looking for guidance?

If you have any questions about post-employment restraints, contact REEF on 1300 616 170 and one of our Workplace Relations Advisors will give you the answers you need.