HRX Holdings Pty Ltd v Pearson [2012] FCA 161

The background

HRX Holdings Pty Ltd ('HRX Holdings') sought to restrain Mr Brent Pearson ('Pearson'), its former co-founder, for a substantial period of time as was set out in his contract of employment.

The contract, called an 'executive service agreement' contained the restraint clause which restrained Pearson for two years from the date of the termination of his employment from partaking in any of the identified 'restraint' activities. One such activity included indirectly or directly carrying on, being involved with or accepting payment from any business in competition with HRX Holdings.

For entering into the contract containing the restraint clause, HRX Holdings gave Pearson an 8% shareholding in the company and a guarantee that Pearson would for the period of his restraint (except for the first three months) receive his past average remuneration.

In July 2011, Pearson resigned as a Director and in September 2011 he resigned his employment entirely in order to join Talent2, a direct competitor.

Reasonableness of the restraint

Despite Pearson's arguments in support of his actions, the Court found that the restraint was reasonable in the circumstances and enforceable. Justice Buchanan said when testing the restraint for reasonableness that it is 'relevant and permissible' to bear in mind the following:

  • HRX Holdings had a well developed policy which insisted upon post employment restraints of its executives and Pearson was 'ultimately familiar' with this
  • The Executive Service Agreement (contract) between Pearson and HRX Holdings was the first to provide for any payment during a period of postemployment restraint
  • HRX Holdings and Pearson agreed on terms and definitions included in the restraint clause
  • HRX Holdings and Pearson agreed that the 8% shareholding in the company which was to be received by Pearson was in exchange for the postemployment restraint
  • Pearson had the opportunity to seek and receive accounts and legal advice about the restraint and did so.

The Court also noted that Pearson was the 'human face of HRX Holdings'... he was relied upon to provide an effective and persuasive incentive to current clients to review and extend contracts; he had access to virtually all HRX Holding's confidential information and he had an intimate knowledge of client relationships, as well as the techniques and resources used by HRX Holdings to sell its services.


Despite this decision, a two year restraint clause is without doubt a very lengthy restraint to be held reasonable and enforceable.

What is clear, however, on the basis of this decision is that the Courts will enforce lengthy restraints if the company / business or person seeking to enforce it is able to demonstrate that the restraint itself and to whom it applies is reasonable in all the circumstances.

A restraint clause should be individually and purposely drafted as well as tailored to suit the employee to who it is to apply. This means that the length of the restraint, together with its scope (the actions it prohibits), should be drafted in such a way to protect the interests of the business, if the particular employee to whom the restraint applies leaves their employment.

It is useful to have a consistent and considered approach to post-employment restraints. This means that thought needs to be given to which categories of employees should be subjected to a restraint clause and the extent of such restraints.

The ability to demonstrate a consistent and considered approach towards restraint clauses which are targeted to only protecting legitimate business interests are likely to be looked upon favourably by the courts.

Deliberately entered restraints (where both parties have discussed the terms of the restraint with respect to length and scope) are also likely to be looked upon favourably by the courts.

The provision of a monetary payment to the employee in exchange for the restraint, particularly in circumstances where the restraint is for a considerable period of time or wide in scope is useful in demonstrating reasonableness to the court, as is the opportunity for the employee to obtain independent legal advice prior to entering the 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.