Australia: Employment Law: More Issues With Restraint Clauses – Three Recent Cases

Last Updated: 29 March 2007
Article by John Lunny and Jeremy Cousins

Restraint of trade clauses are notoriously difficult to enforce. In order to be enforceable, the employer needs to demonstrate that it has a legitimate business interest to protect and that the clause it has used to try to protect this interest goes no wider than is reasonably necessary.

Three interesting decisions were handed down in February this year which demonstrate the difficulties of successfully drafting and enforcing restraint of trade clauses. These decisions also highlight the importance of employee conduct as a factor in decisions on restraint-related injunctions, and the misplaced optimism of employers who pay consideration for their employees’ adherence to restraint clauses.

Woolworths v Banks [2007] NSWSC 45

In this case, Woolworths sought to restrain a former employee from commencing employment with Myer. The restraint of trade clause in question provided for Woolworths, the employer to elect in writing for the restraint to apply. In the case of the employee’s resignation, Woolworths made this election. The employer’s application for an interlocutory injunction was unsuccessful before the New South Wales Supreme Court.

The Court held that there was no evidence that Myer was a ‘competing business’ within the meaning of the restraint clause. The fact that the employer had failed to enforce a restraint against another employee who went to Myer suggested that it did not consider Myer to be a competitor. In a related point, it was also held that there was no real likelihood that any confidential information possessed by the employee would be of any value to Myer. This was a consequence of the significant disparities between the businesses.

The conduct of the employee was also a relevant factor. The employee gave an undertaking to the Court that he would continue to honour his obligations in relation to confidential information and intellectual property, and further, there was no conduct on his part which suggested hostile intentions in that regard. Woolworths Ltd v Olson [2004] NSWCA 372 (Olson) clearly distinguished that the employee had engaged in conduct which demonstrated a willingness and indeed, an intent to misuse confidential information belonging to his former employer.

Brink’s Australia Pty Ltd v Kane [2007] NSWSC 62

In this case, the employer, whose business was the secure transport of money and other valuables, sought to enforce a restraint clause against a former employee. The employee left to take up a similar position at another company involved in cash logistics services. There was evidence that while working out his notice period at the company, the employee attempted to divert customers and business opportunities to his future employer, MDS, as well as passing on sensitive company information to an MDS employee. The application for an interlocutory injunction in the New South Wales Supreme Court succeeded.

A key factor in the decision was again the conduct of the former employee. The employee’s conduct raised a serious question as to whether he would, unless restrained, use confidential information belonging to the employer. The Court noted the similarity of the employee’s conduct to that of the employee in Olson, and stated that the facts in the present case suggested the same conclusion reached in Olson.

The Court also considered whether hardship to the employee was a factor going against the granting of the injunction. It was noted that in this case, although hardship would be caused to the employee in the form of deprivation of income, that hardship was largely self-induced. This was, of course, a reference to the deceitful conduct engaged in by the employee towards the end of his employment with the company. The Court determined that although hardship was still relevant as a possible bar to the granting of an interlocutory injunction, the self-induced nature of that hardship reduced the weight of that particular factor.

Sear v Invocare Australia Pty Ltd [2007] WASC 30

This case centred on the enforceability of a restraint clause which provided monetary consideration to the employee in exchange for being bound. A former employee of a funeral directing business sought to have the restraint declared unenforceable. The employer counterclaimed to recover $500,000 paid to the employee over a ten-year period as consideration for the employee’s continuing adherence to the restraint.

The Supreme Court of Western Australia, held that the clause was unenforceable, and further, that the former employer was not entitled to claim back amounts paid to the employee as consideration. So, enforcing an unenforceable restraint is a non-starter even if you have paid good money for it. This case highlights, once again, the importance of ensuring that restraint clauses are not drafted wider than is necessary to protect the employer’s business interests. Here it was held that even the narrowest area restraint imposed by the clause was wider than necessary for the protection of the employer’s interests. This was because the narrowest area restraint included an area in which the employee had no prior involvement with clients of the business. Further, it was held that any restraint applying beyond the ten year period of the employee’s employment could only protect confidential business information and established customer connections.

This case also underlines the fact that paying consideration in return for an employee’s observance of a restraint can be an expensive and ultimately, futile exercise on the part of the employer. This will be the case where the restraint is otherwise unenforceable and a claim for repayment, such as was made in this case, fails.

The employer in this case put forward several bases for its counterclaim, including mistake, total failure of consideration, and estoppel. The counterclaim was rejected by the Court on all bases, despite the fact that the agreement provided for the employee’s salary to be reduced by $50,000 per year if the restraint was breached or found to be unenforceable. However, the $500,000 outlaid by the employer was not a complete loss, because as the Court noted, the employer had received the benefit of the restraint over the term of the agreement, which was 10 years.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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.

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”

Mondaq Advice Centre (MACs)
Related Video
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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.