By Robin King and Peter Wright
On 1 March 2012, the Federal Court found that a contractual clause restraining a HR director from competing or working in any way in the business of HR outsourcing in Australia and HR recruitment in Australia and New Zealand for two years after his termination of his employment contract was reasonable. In HRX Holdings Pty Ltd v Pearson [2012] FCA 161, Justice Buchanan ordered an injunction on the basis that he was not satisfied that Mr Pearson was prepared to honour the restraints if an injunction was not granted.
Although the restraint clause contained in Mr Pearson's contract was particularly broad in both restraint area and time frame, the Court held that it was reasonable due to a number of factors including:
- the consideration for the restraint and the value of that consideration;
- the special skills and ability of Mr Pearson; and
- the fact that the restraint clause had been negotiated by the parties.
In relation to the consideration for the restraint, Mr Pearson's employment contract provided that in the event of his termination of his employment contract, the company would pay his average monthly salary throughout the restraint period, except the first 3 months of the restraint period, reduced by any alternative income received by Mr Pearson, including proceeds from any sale of his shares in the company.
Restraint provisions are notoriously tricky to draft and enforce. This case illustrates that point.
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