The Supreme Court of New South Wales recently considered an
application for an interlocutory injunction by an employer who
sought to prevent an employee commencing employment with a
competitor company by relying on a restraint clause in his contract
The first defendant, Mr Guy, was employed by the plaintiff, DP
World Sydney Ltd ("DPW"). On April 28, 2016, pursuant to
his employment contract, Mr Guy gave notice that he had accepted a
position with a competitor company. In accordance with the
termination clause (clause 17), Mr Guy was required to stay at home
during the three-month notice period ("gardening leave")
but remain contactable and available to work. Mr Guy was informed
that he would remain an employee until the notice period had
elapsed and termination of his employment was effective (July 28,
2016). Thereafter, the post-employment restraint would commence for
three months. In response, Mr Guy argued that the gardening leave
should count toward the three-month restraint period, so that he
was entitled to commence employment on July 29, 2016. DPW sought an
interlocutory injunction to restrain Mr Guy from commencing
employment with the competitor until October 27, 2016.
At common law, in order for a restraint to be enforced, it must
be: (i) reasonable, having regard to the interests of the parties;
and (ii) not unreasonable in the public interest. A restraint of
trade is "reasonable" if the employer has a legitimate
protectable interest and the restraint does no more than is
reasonably necessary for the protection of that interest. A
"legitimate protectable interest" may include an interest
in trade secrets, confidential information, goodwill, and customer
In relation to the restraint period commencement date, the Court
held that placing Mr Guy on gardening leave did not have the effect
of terminating the employment relationship, as during the notice
period, neither party repudiated the contract and both acknowledged
ongoing rights and obligations under it. As a result, the restraint
period commenced on July 28, 2016. Therefore, the "notice
period," operating in conjunction with the "restraint
period," effectively produced a six-month restraint period. In
relation to the validity of this six-month restraint, the Court
found that Mr Guy occupied a senior position and would have been
privy to confidential information and trade secrets relating to
DPW's operating costs, throughput and efficiency, and client
contracts. Further, any financial hardship caused by the injunction
would be mitigated by DPW's offer to pay Mr Guy the equivalent
of three months' salary. Having regard to Mr Guy's
position, the nature of DPW's business, the small number of
competitors in the market, and the confidentiality of the
information, the six-month restraint was no longer than reasonably
necessary to protect the legitimate interests of DPW in preserving
its confidential information.
This decision provides guidance on the factors that courts will
consider to be relevant in assessing the validity of a restraint of
trade. While a restraint cannot protect against mere competition,
it may be justifiable to prevent an employee commencing work with a
competitor in order to protect the confidential information and/or
trade secrets of the employer. Further, there is no hard-and-fast
rule as to the permissible length of a 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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