HRX Holdings Pty Ltd ('HRX Holdings') sought to restrain
Mr Brent Pearson ('Pearson'), its former co-founder, for a
substantial period of time as was set out in his contract of
The contract, called an 'executive service agreement'
contained the restraint clause which restrained Pearson for two
years from the date of the termination of his employment from
partaking in any of the identified 'restraint' activities.
One such activity included indirectly or directly carrying on,
being involved with or accepting payment from any business in
competition with HRX Holdings.
For entering into the contract containing the restraint clause,
HRX Holdings gave Pearson an 8% shareholding in the company and a
guarantee that Pearson would for the period of his restraint
(except for the first three months) receive his past average
In July 2011, Pearson resigned as a Director and in September
2011 he resigned his employment entirely in order to join Talent2,
a direct competitor.
Reasonableness of the restraint
Despite Pearson's arguments in support of his actions, the
Court found that the restraint was reasonable in the circumstances
and enforceable. Justice Buchanan said when testing the restraint
for reasonableness that it is 'relevant and permissible' to
bear in mind the following:
HRX Holdings had a well developed policy which insisted upon
post employment restraints of its executives and Pearson was
'ultimately familiar' with this
The Executive Service Agreement (contract) between Pearson and
HRX Holdings was the first to provide for any payment during a
period of postemployment restraint
HRX Holdings and Pearson agreed on terms and definitions
included in the restraint clause
HRX Holdings and Pearson agreed that the 8% shareholding in the
company which was to be received by Pearson was in exchange for the
Pearson had the opportunity to seek and receive accounts and
legal advice about the restraint and did so.
The Court also noted that Pearson was the 'human face of HRX
Holdings'... he was relied upon to provide an effective and
persuasive incentive to current clients to review and extend
contracts; he had access to virtually all HRX Holding's
confidential information and he had an intimate knowledge of client
relationships, as well as the techniques and resources used by HRX
Holdings to sell its services.
Despite this decision, a two year restraint clause is without
doubt a very lengthy restraint to be held reasonable and
What is clear, however, on the basis of this decision is that
the Courts will enforce lengthy restraints if the company /
business or person seeking to enforce it is able to demonstrate
that the restraint itself and to whom it applies is reasonable in
all the circumstances.
A restraint clause should be individually and purposely drafted
as well as tailored to suit the employee to who it is to apply.
This means that the length of the restraint, together with its
scope (the actions it prohibits), should be drafted in such a way
to protect the interests of the business, if the particular
employee to whom the restraint applies leaves their employment.
It is useful to have a consistent and considered approach to
post-employment restraints. This means that thought needs to be
given to which categories of employees should be subjected to a
restraint clause and the extent of such restraints.
The ability to demonstrate a consistent and considered approach
towards restraint clauses which are targeted to only protecting
legitimate business interests are likely to be looked upon
favourably by the courts.
Deliberately entered restraints (where both parties have
discussed the terms of the restraint with respect to length and
scope) are also likely to be looked upon favourably by the
The provision of a monetary payment to the employee in exchange
for the restraint, particularly in circumstances where the
restraint is for a considerable period of time or wide in scope is
useful in demonstrating reasonableness to the court, as is the
opportunity for the employee to obtain independent legal advice
prior to entering the restraint.
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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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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