In a significant decision for employers, the New South Wales
Court of Appeal recently dismissed an appeal against a decision
upholding a post-termination restraint deed which included a number
of cascading provisions.
The decision means carefully drafted "cascading" or
"step" restraints, which typically impose a range of
decreasing restrictions on certain activity of departed staff
– to hedge against a court striking down unreasonable
parts – are not void for uncertainty on the basis they
contain no mechanism for the selection of which provision actually
binds the ex-employee.
Peter Hanna, an experienced insurance broker, commenced
employment with OAMPS Insurance Brokers Ltd
(OAMPS) in 1990. He resigned from OAMPS on 22
April 2010, having accepted an offer to work at another insurance
broking firm. His resignation was effective from 28 May 2010.
On 30 September 2008, whilst Mr Hanna was still employed by
OAMPS, he signed a written employment contract, a schedule to which
contained a post-employment restraint deed.
After Mr Hanna left OAMPS, a dispute arose between the parties
concerning the enforcement of the restraint covenant. The covenant
contained a cascading clause with nine separate and overlapping
provisions: the widest period and area being 15 months in
Australia, and the narrowest being 12 months in the metropolitan
area of Sydney.
On 30 July 2010 the Supreme Court found that one of the
combinations of the restrictions, a 12 month Australia-wide
restraint, was reasonable to protect OAMPS' business.
The questions on appeal concerned:
whether the covenant was void for uncertainty
the reasonableness of the covenant
the primary judge's failure to apply the test in
Stacks Taree v Marshall [No 2]  NSWSC 77
the primary judge's findings in relation to reasonableness
and the 12 month restraint period.
On 19 October 2010 the New South Wales Court of Appeal dismissed
Mr Hanna's appeal finding as follows.
The restraint deed was not void for uncertainty. It was clear
that the various restraint periods and areas were part of separate
and independent provisions, all capable of being understood and
complied with without breaching any other. Neither their operation,
nor any principle of law concerned with certainty of contract,
required a mechanism or hierarchy of order of operation.
The restraint deed was not against public policy under the
Restraints of Trade Act 1976 (NSW) by reason of multiple
and several operation of the cascading clause in the restraint
The restraint covenant was not unreasonable. The reasonableness
and validity of a restraint clause should be assessed at the time
of entry into the contract.
There is no legally required test in assessing the
reasonableness of the duration of the restraint period. The use of
one test or another depends on the facts and the evaluation of the
approach that is reasonable.
Implications for employers
This decision is a useful guide to employers to assist them in
the drafting of appropriately worded restraint covenants so as to
provide them with more likelihood to be able to prevent
ex-employees soliciting or approaching clients. However, the idiom
that the devil is in the details remains true. That is, the wording
used in post-employment restraint covenants is critical to an
employer's ability to persuade a Court to enforce them.
The decision also serves as a timely reminder to employers whose
post-termination restraints include cascading provisions to ensure
that the provisions include clear language that each permutation of
the restraint is separate, independent and severable from all other
permutations. Without this confirmation cascading provisions may
well be unenforceable by reason of them being void for
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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Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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