Most Read Contributor in Australia, September 2016
The Full Court of the Federal Court has upheld a
two-year restraint prohibiting the 'human face' of a
business from working with a competitor
When Mr Pearson resigned from his employment with HRX, it
brought proceedings to prevent him from taking up employment with
one of its competitors, Talent2. HRX's claim was based on a
clause in Mr Pearson's service agreement, which sought to
preclude him from working in a competitive business for a period of
2 years after the termination of his employment with HRX. The
primary judge, Justice Buchanan, held that the restraint was
reasonable and therefore binding on Mr Pearson.
Mr Pearson appealed to the Full Court of the Federal Court,
arguing that the restraint was not reasonably necessary to protect
any legitimate interest of HRX because:
the restraint prevented him from competing with HRX for 2
years, anywhere in the world for the business of customers who had
never been customers or prospective customers of HRX; and
his contract also contained separate non-solicitation and
confidentiality provisions, which would protect any legitimate
interest of HRX.
The Full Court, consisting of Chief Justice Keane and Justices
Foster and Griffiths, upheld the primary judge's finding that
the 2 year restraint was a reasonable manner of protecting
HRX's legitimate interests. The evidence relied on by the Full
Court in coming to this conclusion included the following:
Mr Pearson was active in the establishment and direction of
HRX's business and, during his employment, he had access to
virtually all of HRX's confidential business information.
In his position at HRX, Mr Pearson had insisted that HRX staff
be subject to some level of post-employment restraint after they
left HRX's employment. Mr Pearson had himself negotiated staff
restraints on behalf of HRX.
The terms of Mr Pearson's restraint were negotiated over a
period of some months and, as agreed, provided for his salary to be
paid to him by HRX during all but three months of the restraint
period. This was despite the evidence that HRX did not favour
making payments during the period of post-employment
The Full Court also referred to the fact that Mr Pearson was the
"human face" of HRX in its dealings with customers and in
the pursuit of new business. In this regard, the Full Court noted
the well established principle that an employer's customer
connection is a legitimate business interest that can support a
reasonable restraint of trade where the employee in question
controls the employer's customer connections.
Accordingly, it was held that HRX's interest in protecting
its customer connections was sufficient to justify HRX's
bargaining for protection against the risk that the personal
contacts made by Mr Pearson would follow him to a new employer.
That interest, it was said, went beyond HRX's interest in
confidential information and would not sufficiently be protected by
the confidentiality provision in Mr Pearson's service
Further the Full Court found that the non-solicitation provision
in Mr Pearson's service agreement would not have protected HRX
from the risk that its customers, knowing of Mr Pearson's move
to Talent2, would choose to move their business to Talent2
"unbidden by Mr Pearson and without even discussing the move
with him". It was also found that the non-solicitation clause
might not provide practical protection to HRX if it did not become
aware of a breach. In fact, the Full Court made note of an email
sent by Mr Pearson to an existing client which read:
"I cannot solicit your business... but I believe you
can solicit my services if you know what I mean."
The Full Court stated that but for the proceedings, this email
may not have come to light, yet Mr Pearson had argued that the
non-solicitation clause was enough to protect HRX's legitimate
The Full Court also held that the 2 year restraint reasonably
accommodated the contractual cycle on which HRX operates, giving
HRX the opportunity to effect a renewal of its contracts with
customers without the risk that the customer would choose to
"stay" with Mr Pearson.
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