Australia: Employee restraint of trade voided by non-compliance with contract by employer

Last Updated: 14 June 2017
Article by Michael Bishop, Amelita Hensman and Lachlan Chisholm

Restraints of trade in employment contracts may be difficult for an employer to enforce if they have not performed their contractual obligations. This was made clear in a recent decision by the Supreme Court of Victoria (SCV) in a contractual dispute between Crowe Horwath (Aust) Pty Ltd (CHA) and its ex-employee Anthony Loone (Loone).1

How the Dispute Arose

On 1 November 2012, Loone entered into an employment contract with CHA as the Managing Principal of CHA's Launceston accounting office (the Contract). Among other things, the Contract contained a restraint of trade that prevented Loone from soliciting CHA's clients, and from conducting any business similar to or in competition with CHA within a 5km radius of the Launceston office for a period of 12 months following termination (the Restraint).

CHA would pay a bonus to Loone in any given year, in an amount calculated at CHA's discretion, taking into account prescribed mandatory criteria, including Loone's personal performance, the performance of CHA and broader economic conditions (Incentive Scheme).

In 2014 and 2015, Loone contributed significantly to CHA's successful acquisition of an accounting firm in Launceston, leading him to believe that the associated profits would be considered as part of CHA's calculation of his yearly bonus. By way of a telephone call on 1 July 2016, Loone was informed by his superiors that those profits would be excluded from the calculation of the bonus pool for CHA's Launceston office.

On 9 June 2016, during a presentation by senior executives of CHA, Loone was alerted to a proposed alteration of the Incentive Scheme, whereby CHA intended to defer payment of 20 per cent of annual bonuses for a period of three years.

When Loone terminated the Contract on 12 July 2016, CHA applied to Court and obtained an interlocutory injunction which prevented Loone from providing accounting services to 89 clients with whom he had dealings in the previous 12 months.

Enforceability of the Restraint

The SCV found that the Restraint was reasonable in the circumstances because it did no more than was necessary to protect CHA from the loss of clients with whom Loone had developed a close personal relationship. In a plea for the SCV to interpret the Restraint broadly, CHA argued that the Restraint applied to 881 clients that had 'direct dealings' with Loone, as opposed to the 89 clients that had 'direct personal dealings' with Loone. The SCV rejected this interpretation of the Restraint on the basis that, if accepted, it would make the Restraint unreasonably broad and therefore unenforceable.

Repudiation and Termination

Loone sought to establish that the Restraint did not survive termination of the Contract because CHA had repudiated the Contract. A party is said to repudiate a contract by demonstrating to the other party an intention not to comply with its contractual obligations. Repudiation by one party entitles the other party to either accept the repudiation and terminate the contract or affirm the contract and continue to perform their contractual obligations.

The SCV held that CHA repudiated the Contract on 1 July 2016 when Loone's superior communicated CHA's intention to exclude the profits associated with the acquisition from the assessment of Loone's yearly bonus. In this respect, it was not the quantum of any bonus that Loone disputed, it was CHA's failure to take into account the profits associated with the acquisition when assessing Loone's bonus pursuant to the Incentive Scheme.

Further, the SCV found that CHA's decision on 9 June 2016 to defer payment of 20 per cent of bonuses for three years also constituted repudiation: there was nothing in the Contract authorising CHA to withhold any proportion of a bonus once the quantum of the bonus had been determined.

CHA claimed that Loone had not validly terminated the Contract, but rather, he had affirmed the Contract because of the delay between each repudiatory breach (9 June 2016, 1 July 2016) and the date of termination (12 July 2017). However, case law on the issue of delay provides that if an employee communicates their objection to their employer's conduct, they are generally not taken to affirm the contract merely because they have continued to work and receive remuneration. The evidence showed that at around the time of CHA's repudiatory conduct, Loone expressed to his superiors his concern and indignation regarding CHA's non-compliance with the Incentive Scheme. Therefore, despite his delay, Loone was entitled to accept CHA's repudiation and terminate the Contract.

Effect of Termination on Enforceability of Restraint

The SCV had to consider whether the Restraint survived termination of the Contract. On this point, neither party could point to a case where an Australian Court has enforced a restraint of trade in circumstances where an employee has terminated a contract by accepting their employer's repudiation.

Loone argued that the Incentive Scheme was quid pro quo for the Restraint, such that CHA was only entitled to enforce the Restraint if it had complied with its obligations pursuant to the Incentive Scheme; and further, if the Restraint was to survive termination for a repudiatory breach, the Restraint could not be considered reasonably necessary to protect CHA's legitimate interests and would therefore be unenforceable.

The SCV was persuaded by Loone's submissions, and went on to say that even if the Restraint were to survive termination of the Contract in this case, it would be inconsistent with equitable principles for the Court to grant an injunction to CHA in circumstances where it has failed to perform its part of the bargain.

Significance of the Case

In light of this case, it is unlikely that Courts will enforce a restraint of trade in circumstances where the employee has terminated the contract as a result of the employer's repudiatory breach.

Employers should be mindful of the type of conduct that could constitute repudiation: wrongful dismissal or underpayment of remuneration, for example. This case, a cautionary tale, demonstrates the consequences flowing from an employer's repudiatory breach of an employment contract. Employers should avoid conducting themselves in ways that demonstrate, to a reasonable person in the position of their employee, an unwillingness to perform their contractual obligations as employer.

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.

Michael Bishop
Lachlan Chisholm
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”

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.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


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.