A recent case between two airlines shows that where employees are subject to garden leave provisions in employment agreements, additional restraint clauses may not fly.
In Air New Zealand Limited v Grant Kerr, the Employment Court did not uphold a six month post-termination restraint clause in a former senior manager's employment agreement as the manager had already served out six months' garden leave. As a result, the employee could launch into his new career with JetStar – without waiting another six months.
When Mr Kerr resigned from his employment as General Manager of Air Nelson, he gave six months' notice, as was required under his employment agreement.
During his notice period, Air New Zealand paid Mr Kerr to take garden leave. The garden leave provision in Mr Kerr's employment agreement effectively stopped him from working within the industry during the notice period and delayed him from starting his new management role with JetStar.
Although Mr Kerr agreed to take garden leave, he told Air New Zealand that he would not comply with an additional restraint clause in his employment agreement. This post-termination non-competition restraint would prohibit him from being involved in "any business or activity which was in any way in competition" with Air New Zealand for six months after his employment ended.
Air New Zealand sought an injunction in the Employment Court against Mr Kerr to enforce this post-termination restraint of trade clause.
Mr Kerr argued that this restraint could not be enforced because it was unreasonable in terms of its (six month) duration –and the Court needed to take into account that he had already taken six months garden leave.
He also contended that the geographical area (NZ and Australia) and scope of the restraint (any business or activity which was in any way in competition with Air New Zealand or its companies) were unreasonable.
Employment Court Judge Ford accepted that passenger carrier airlines, Air New Zealand and JetStar, had an "aggressively competitive" relationship.
Judge Ford considered that Air New Zealand had a legitimate interest in protecting, through a restraint covenant, its proprietary confidential commercial information from misuse. This information was akin to a trade secret.
However, Judge Ford decided that the garden leave provision in Mr Kerr's employment agreement should be taken into account when considering whether the restraint period was of a reasonable duration. By requiring Mr Kerr to serve out his six-month garden leave, Air New Zealand had already obtained all sufficient protection. It had no need for any additional protection through post-employment restraint covenants.
As the Court had found the restraint unenforceable on the duration issue, it did not need to consider any other issues relating to reasonableness.
Employers need to be mindful that should you require staff to take garden leave, you risk not being able to enforce post-termination restraints. You should seek legal advice to ensure that your restraint clauses are reasonable. Otherwise, if restraint provisions fail, your employees are free to take flight.
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.