Courts are demonstrating an increasing willingness to enforce
non-compete clauses, particularly for senior employees. The Federal
Court recently relied on the protection of a customer base, rather
than the more traditional basis of protection of confidential
information, to enforce such a clause. A Supreme Court decision
also relied upon the power of two ex-employees to attract clients
to enforce a three year non-compete clause.
In the Federal Court proceedings of Pearson v HRX Holdings
Pty Ltd  FCAFC 111, a former director agreed to a clause
which prohibited him from accepting employment with a business
'similar to or competitive with' his employer for two years
after termination of his employment. He also agreed to a
non-solicitation of client clause, which is the more common way to
protect client relationships.
The employee decided to resign on 12 August 2011, citing
dissatisfaction with management. However, the Court found a week
before resigning, a competitor had offered the employee a senior
role, which he accepted. The new role was based in Hong Kong,
however, the employee was to supervise the new employer's
employees who competed with the former employer in Australia.
The Court noted the employee's former role involved
developing and retaining customers and pursuing new business. The
employer's interest in protecting its customer base was
therefore sufficient to justify restraining the employee from the
The Supreme Court decision of OAMPS Gault Armstrong Pty Ltd
and Anor v Glover and Anor  NSWSC 1175 concerned two
marine insurance brokers who were made redundant with effect from 9
September. They were previous owners of a business which was
acquired by the new employer. Their new employment contracts
restrained them from working for a competitor for up to 3 years,
post-employment. The new employer, who was a competitor, announced
the employees' appointment as "joint regional heads"
on its website on 12 September. On the same day, the former
employer received letters from two clients advising the new
employer would be their exclusive broker for marine insurance.
The judge thought the clients transferring their business on the
same day as the media release was material and that the former
employer would be exposed to the probability of loss of custom
attributable to the brokers' "force of attraction" in
the marine insurance industry. In other words, as the Court said,
"the means of power of attraction is a protectable
component of goodwill."
What does this mean?
The cases demonstrate that courts can enforce non-compete
clauses to protect customer bases and to counter the force of an
ex-employee to attract clients, and not simply to protect
How can we help?
We can draft post-employment restraints to protect your
relationships with clients, staff and your confidential information
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
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”
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).