A recent case between two airlines shows that where employees
are subject to garden leave provisions in employment agreements,
additional restraint clauses may not fly.
In Air New Zealand Limited v Grant Kerr, the Employment
Court did not uphold a six month post-termination restraint clause
in a former senior manager's employment agreement as the
manager had already served out six months' garden leave. As a
result, the employee could launch into his new career with JetStar
– without waiting another six months.
When Mr Kerr resigned from his employment as General Manager of
Air Nelson, he gave six months' notice, as was required under
his employment agreement.
During his notice period, Air New Zealand paid Mr Kerr to take
garden leave. The garden leave provision in Mr Kerr's
employment agreement effectively stopped him from working within
the industry during the notice period and delayed him from starting
his new management role with JetStar.
Although Mr Kerr agreed to take garden leave, he told Air New
Zealand that he would not comply with an additional restraint
clause in his employment agreement. This post-termination
non-competition restraint would prohibit him from being involved in
"any business or activity which was in any way in
competition" with Air New Zealand for six months after
his employment ended.
Air New Zealand sought an injunction in the Employment Court
against Mr Kerr to enforce this post-termination restraint of trade
Mr Kerr argued that this restraint could not be enforced because
it was unreasonable in terms of its (six month) duration –and
the Court needed to take into account that he had already taken six
months garden leave.
He also contended that the geographical area (NZ and Australia)
and scope of the restraint (any business or activity which was in
any way in competition with Air New Zealand or its companies) were
Employment Court Judge Ford accepted that passenger carrier
airlines, Air New Zealand and JetStar, had an "aggressively
Judge Ford considered that Air New Zealand had a legitimate
interest in protecting, through a restraint covenant, its
proprietary confidential commercial information from misuse. This
information was akin to a trade secret.
However, Judge Ford decided that the garden leave provision in
Mr Kerr's employment agreement should be taken into account
when considering whether the restraint period was of a reasonable
duration. By requiring Mr Kerr to serve out his six-month garden
leave, Air New Zealand had already obtained all sufficient
protection. It had no need for any additional protection through
post-employment restraint covenants.
As the Court had found the restraint unenforceable on the
duration issue, it did not need to consider any other issues
relating to reasonableness.
Employers need to be mindful that should you require staff to
take garden leave, you risk not being able to enforce
post-termination restraints. You should seek legal advice to ensure
that your restraint clauses are reasonable. Otherwise, if restraint
provisions fail, your employees are free to take flight.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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