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Many employment contracts contain clauses which limit an
employee's right to work once the contract has ended, commonly
known as restraint of trade clauses.
The courts have long considered it to be against public policy
to limit a person's ability to work. Accordingly, restraint of
trade clauses are void – and can therefore be struck out
of a contract – unless they are considered to be a
reasonable restraint to protect an employer's legitimate
business interest.
One might therefore think that a clause which prevents an
employee from working in any capacity whatsoever, anywhere in the
world, in a business or operation that is similar to or competes
with the original business or its subsidiaries for a period of two
years, would be entirely unreasonable. However, in Pearson v
HRX Holdings Pty Ltd & Anor1, in which Mr Brent
Pearson sought to have his restraint of trade clause with his
ex-employer struck out, the court upheld just such a clause.
Some of the facts giving rise to this decision were as
follows:
Mr Pearson was active in the establishment and direction of his
ex-employer, HRX Holdings Pty Ltd ("HRX");
Mr Pearson was the primary presenter to prospective clients in
its endeavour to secure business;
Although HRX only had clients in Australia and New Zealand, it
had tendered for work in other areas and was actively seeking
business opportunities outside those jurisdictions;
The restraint clause was actively negotiated between HRX and Mr
Pearson, and Mr Pearson obtained legal advice prior to agreeing to
it2;
The restraint clause provided for Mr Pearson's salary to be
paid to him by HRX during all but three months of the restraining
period (subject to reduction if Mr Pearson obtained alternative
employment during that period); and
Mr Pearson was also allocated an 8% shareholding in HRX in
consideration of entering into the restraint clause.
So what at first appeared to be a rather draconian restraint
appears more reasonable.
Enforcing a restraint of trade clause can often seem difficult
and certainly Mr Pearson was sufficiently confident of having the
clause struck out that he was prepared to take it to the Full Bench
of the Federal Court, no doubt at great expense, despite having
negotiated, sought advice on and ultimately agreed in writing to
the clause.
This case highlights, however, that with carefully considered
legal advice and a balanced approach, strict restraints can
successfully be imposed.
Footnotes
1Pearson v HRX Holdings Pty Ltd & Anor
[2012] FCAFC 111, delivered 17 August 2012
2Mr Pearson's legal advice was that the
proposed restraint period of two years was "excessive and
likely to be unenforceable..." but that he should "leave
this in".
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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A court has determined that an employee had a workplace right under the Fair Work Act 2009 to make a complaint entitling the employee to proceed with her general protections claim.
