Restraint of Trade Clause Too Restricting
Despite evidence of fierce competition between two businesses, a court has found a senior manager can work for her new employer without delay, ruling the restraint of trade provisions in her contract to be too broad to enforce.
The company had engaged the manager in a financial role with a six month probationary period. The contract included the restraint provision which sought to prevent the manager from working for a competitor for a year after leaving the company.
The terms of the restraint clause in the manager’s contract were in two parts. The first was worded to restrain the employee from “any activity” akin to those she undertook for the employer. The company argued that this was intended to relate to the activities of a competitor, but the court found it was worded so as to mean the activities of the employee, so it was void. To find otherwise would have meant the employee could not work in her profession even if the new employer was in an entirely different industry.
The second arm of the restraint clause was tied to named competitors that the manager could not work for. In this area, the court indicated the onus was on the company to demonstrate the extent of the restraint was justified in the circumstances. On examination, the company was unable to inform the court whether 46 of the 50 competitors had commercial activities which were not in competition with the employer. And of the remaining four, at least one of them clearly did have commercial activities which were unrelated to the business of the employer.
The court could not support the restraint and declared it unenforceable given the manager would be effectively barred from making a living for a year after leaving the company during her probationary period. Unlike other executives with the company, the manager’s contract did not include any form of post-employment income maintenance in recognition of the restraint clause either.
The company understandably wanted to protect its IP and sensitive commercial information generally. The court did not quibble with the seriousness of the potential threats involved. But the extent of the restraint and factual mix of circumstances led to the court deciding to release the manager from the restraints.
The key issues here are where the information sought to be protected is truly commercial-in-confidence, then senior managers can be restrained, but the restraints cannot be so wide as to prevent a person from any kind of employment remotely related to their current job. If that is what an employer wants, then the employee will need to have some form of compensation (salary) either built in to their salary, (and noted as such), or post-employment support of sufficient standard to persuade the court to uphold any restraint.