Australia: Seven Network succeeds in enforcing restraint clause in employment contract

In brief - Employment restraint reasonable but only as long as needed to protect commercially sensitive information

In Seven Network (Operations) Limited v Warburton (No 2)[2011] NSWSC 386, the Supreme Court of NSW determined that the employer had the right to enforce a restraint of trade clause in an employment contract and prevent a senior executive from joining a competitor before the end of his contract period.

Warburton bound by lengthy and cascading post-employment restraint periods

The plaintiff, James Warburton, was employed by Seven Network (Operations) Limited as a senior executive. He was highly regarded and seen as the natural successor to Seven's Chief Executive Officer, David Leckie.

Mr Warburton was initially employed by Seven in August 2003. In July 2008, he signed a contract with Seven that provided him with a further three years of employment which was due to expire on 14 October 2011.

In addition to this, Mr Warburton also entered into an equity participation deed with Seven's private equity investors known as the Seven Media Group (SMG). The deed provided that in return for various equity options, Mr Warburton agreed to be bound by a variety of lengthy and cascading post-employment restraint periods.

Network Ten offers Warburton position as CEO

In February 2011, rival Network Ten terminated the employment of its Chief Executive Officer. By this stage, the commercial reputation of Mr Warburton was so elevated that Seven recognised that he was a natural replacement target for Ten. Seven's instincts were correct.

Ten did in fact approach Mr Warburton for the position. On 2 March 2011, Mr Warburton signed a written contract with Ten to commence employment on 14 July 2011 and informed Seven the same day that he had signed with the rival network. Seven immediately instructed Mr Warburton to leave the premises and instructed him not to contact staff or clientele.

Seven's fury was not just related to being spurned by Mr Warburton. There were commercial concerns as well. Seven had been gearing up for negotiations with major advertising buying groups for the 2012 calendar year. Mr Warburton's timing could not have been worse.

He had detailed knowledge of Seven's commercial rates, pricing models, margins and cost structures. He had also been closely involved in preparing Seven's commercial position prior to these forthcoming negotiations. If he were to start work with Ten in July, he could offer Ten insights which could be commercially disastrous for Seven.

Seven seeks to enforce employment restraints

Seven then sought to enforce the restraints to prevent Mr Warburton from commencing employment with Ten until 14 October 2012, being 12 months from the cessation date of his employment contract.

In the Supreme Court of New South Wales before Pembroke J, this case turned on two issues. First, the court had to determine whether the restraints were reasonable. Second, if they were enforceable, for what period of time should they operate?1

The wording in the restraint clauses provided that the restraint would commence from the date Mr Warburton "ceases to be employed or engaged" by Seven.

Seven contended that not only were they entitled to make Mr Warburton serve out his "gardening leave" from 2 March 2011, but also that he had to continue his employment until 14 October 2011. Further, Mr Warburton should be restrained from working for a competitor for an additional period of 12 months commencing on 14 October 2011.

Mr Warburton was essentially just like a star footballer who was contracted to play for them. He could not be allowed to play for another team during the season.

Had Seven repudiated the employment contract?

Mr Warburton disputed Seven's attempts to retain his employment until October 2011. He had four principal arguments.

First, he claimed that by placing him on "gardening leave", Seven had repudiated the employment contract, thus allowing him to take up new employment with Ten. This ignored the fact that the employment contract expressly stated that Seven was "entitled but not obliged" to give Mr Warburton any duties to perform.

The inclusion of these words was fortunate for Seven. However, they were not entirely necessary, as the court considered it likely that the case law would entitle Seven to be able to send Mr Warburton on gardening leave anyway.

The court also noted that it was not uncommon for individuals in industries such as media to be required to serve out their contract term without being given any work. Pembroke found that there had been no intention to repudiate the contract expressed by Seven.2

Did Seven's CEO suggest that Warburton could work for Network Ten?

Mr Warburton's second argument was given short shrift by the court. Mr Warburton argued that comments made by Mr Leckie in a conversation with him in February 2011 led him to believe that no objection would be made to his subsequent employment by Network Ten. Mr Warburton submitted that Seven should be estopped or prevented from enforcing the restraint as a result of the comments made.

While Pembroke J preferred Mr Warburton's version of the conversation, he did not think Mr Warburton sufficiently demonstrated that he had acted to his detriment as a result. Instead the court thought that Mr Warburton sought to take advantage of Mr Leckie's words.

The court felt that although Mr Leckie made favourable comments that suggested that Mr Warburton was free to work for Ten, that alone was not enough. Mr Warburton had to show how the words Mr Leckie used had caused him detriment. This was going to be difficult considering that his contract with Seven expressly provided that he had to work for them until October 2011. Pembroke J ultimately found that Mr Leckie's statements were not intended to have a binding effect upon Seven or to prevent Seven from enforcing the restraint clause.

In any event, courts are usually reluctant to grant relief on the grounds of estoppel for mere loose statements. The words used by Mr Leckie to Mr Warburton were not of a kind that would have allowed him to walk away from the contractual obligations he was bound to uphold with Seven.

Should the restraint period be reduced by the "gardening leave" period?

Mr Warburton's third argument had the most merit but it required him to concede the effectiveness of his contract with Seven and most particularly the restraints. Here, Mr Warburton contended that if the restraints were effective in any way, they could only operate from the time he was placed on gardening leave. Alternatively, he argued that the period of gardening leave should reduce the time periods of the restraint.

Mr Warburton's final submission was that the restraints were void because they were uncertain. He reasoned that because of various permutations contained within the restraints, they were open to a variety of possible outcomes and so should be struck down.

Promises must be kept in an employment relationship

The court considered that the July 2008 contract between Mr Warburton and Seven was valid. Pembroke J explicitly noted the veracity of the Latin phrase pacta sunt servanda (promises must be kept). Mr Warburton had agreed to work for Seven to October 2011. That much was clear from the wording in the employment contract.

Like a star footballer, he was obliged either to play for Seven or to sit out the season. There was no scope for early termination of the contract. Just because he wanted to play for another team did not make Mr Warburton's desires correct.

The court confirmed the authorities upholding the obligation of employers to see out such fixed-term contracts.3 The court held that a fixed-term contract without an early termination clause carried with it mutual obligations requiring performance by both sides to an employment relationship.

Employers have more options than employees

This is perhaps an unfair outcome. While an employee may be obliged to serve out a term under a contract, an employer has the option to terminate the contract early and face a damages action.

Even then, an employee who suffers damages from early termination of a fixed-term contract may still be obliged to mitigate their loss4. What is good for the goose is sometimes avoided by the gander.

Warburton signed contract acknowledging that the restraints are reasonable

The court's attention then turned from the analysis of the employment contract to the analysis of the impact of the deed. Pembroke J disagreed with Mr Warburton's contention that the restraints in the deed could not be read together with the employment contract. The deed that Mr Warburton signed contained an acknowledgement clause stating that the restraints were reasonable. The restraints thus formed express obligations for Mr Warburton to honour, even though they were promised to a party that was not part of the core employment relationship.

The court also considered as irrelevant Mr Warburton's argument that the various permutations of the restraints should be void for uncertainty. While the operation of the restraints did cause some confusion, they were not so complex as to merit being set aside.

The court held that it had an obligation to make genuine efforts to find a workable understanding of the restraints if they were legitimately difficult to ascertain. Ultimately, however, the court found that the restraints were not unworkable and thus should not be struck out.

Restraint only required as long as necessary to protect confidential information

Having determined that Seven had not repudiated the contract and that the restraint was valid, Pembroke J considered the correct time period for the restraint should not run until October 2012, as such a finding would be capricious or unreasonable.5

The court took a holistic approach to the legal issues before it in finding that the restraint of trade was taken to be valid and enforceable from March 2011 to 1 January 2012. In exercising its discretion the court considered that the restraint was required to protect Seven's confidential information, clientele and staff.

However, any restraint past a ten-month period would exceed that which was required for the reasonable protection of the employer's legitimate interests.6

Commercial risk faced by Seven Network

The court gave weight to the significant commercial imperatives that Seven faced. Seven ran a clever case, providing evidence of the commercial risk it faced if Mr Warburton were to be allowed loose into the commercial arena.

The advertising revenue which was Seven's lifeblood was clearly the most important asset that it had. Mr Warburton's defection to Ten potentially threatened those revenues. The evidence supported Seven's risk exposure and this justified the restraint.

Employment restraint can end when commercial risk to employer dissipates

The determination of a business's legitimate interests is a moveable feast and has to be determined at the time of the court's hearing. This is because courts retain an inherent discretion to give relief if a proper basis is established.7

A court in this regard need only apply a restraint to the extent needed at the date of enforcement to give efficacy to the parties' intention and to protect their interests. That being said, although a restraint of trade may have been reasonable when the contract was formulated, the clause may subsequently become unreasonable at the date the employer seeks to enforce it.

In Mr Warburton's case, the evidence from Seven itself suggested that the risk associated with its commercially sensitive information dissipated in January 2012 after the advertising rates for that year had been locked in during 2011. Any subsequent commercial knowledge held by Mr Warburton would only have historical value.

Seven's protection was only for the duration of its risk in 2011 and there was no need to keep the restraints going until October 2012. As a result, when the new season started in 2012, Mr Warburton could then engage in commercial endeavours with Ten.

Lessons for employers

  • To aid in ensuring a restraint will be found to be enforceable, it may assist to include an "acknowledgement of reasonableness" clause in the employment contract, particularly for senior and executive employees.
  • Employment contracts should be unambiguously expressed. In Mr Warburton's case, the court noted that where the language of a contract is open to two constructions, it is preferred to uphold the construction that avoids a consequence that appears to be capricious or unreasonable, even if it is "not the most obvious or the most grammatically accurate".8
  • To aid with contract certainty, employers should draft restraint of trade clauses as part of the employment contract itself, rather than an ancillary instrument. Seven got away with not doing this on this occasion; the next employer may not be so lucky. The court gave substantial weight to the fact that Mr Warburton was aware of the restraint clause. Generally speaking, the employment contract contains the entire written agreement between the parties. Incorporating the restraint of trade directly into an employee's contract will help to avoid any additional hurdles of proving that an ancillary document should also be considered as part of the employment relationship.


1 Warburton case, para [4]
2 ibid para [57]
3 For example, Curro v Beyond Productions Pry Limited [1993] 30 NSWLR 337. Pembroke J also cited as informal authority the prophetic and profound words of John Milton in his sonnet On His Blindness: "They also serve who only stand and wait."
4 Automatic Fire Sprinklers Pty Limited v Watson [1946] HCA 25
5 Warburton, para [18]
6 ibid, para [21]
7 ibid at [4] referring to Tullett Prebon (Australia) Pry Ltd v Purcell [2008] NSWSC 852 at paras [88] and [91]
8 ibid, para [43]

This article was first published in the December 2011 edition of Keeping Good Companies, the journal of Chartered Secretaries Australia.

For more information about workplace relations please see the website of Colin Biggers & Paisley or contact Sam Ingui at or Sarah Hedger at

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Sarah Hedger
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions