Employer Wins Restraint of Trade Case Against Employee

Contractual restraint of trade clauses are common in employment agreements. The clauses are there to protect the interest of the business owner should an employee resign and take up business in competition with the employer and or leave employment to work for a competitor.

A business owner has an interest in protecting the goodwill of its business that it has built up over the years.

Generally however restraint of trade clauses are invalid because they are considered to be against the public interest. It is in the public interest to encourage competition.

So what can a business do to protect its goodwill when an employee leaves with the threat of taking all of the customers of the business?

In the right circumstances, and provided the restraint of trade clause is properly drafted, the employer can restrain the employee.

In Auto Parts Group Pty Ltd v Cooper [2015] QSC 155 the employer was successful in restraining 2 employees. In that case the employees held senior positions and took up employment with a competitor.

The employer Auto Parts Group was engaged in the importation and wholesaling of automotive parts and had offices in Queensland, New South Wales, Victoria and South Australia. It had approximately 13,000 customers in Australia and 5900 across Queensland. The employees were a Queensland State Manager and an Assistant State Manager.

The employment contract however contained confidentiality clauses and a “restraint of trade” clause which prevented the employees from engaging in “business activity that is in competition with any business carried on by” the employer for a period of six months.

There was legal argument as to whom a “competitor” was. The employee argued that a competitor could only be another company that offered exactly the same products to exactly the same customers as the employer. The employer and the court disagreed with such a narrow analysis. A competitor in this case was any company that participated in the same market.

The onus is on the employer to prove that the Restraint of Trade is reasonable.

The employer needs to show that the restraint “affords no more than reasonable protection to the party in whose favour it is imposed and is not injurious to the public”. The employer in this instance was able to demonstrate that its interests were worthy of protection.

The employer contended that there was a risk of disclosure of confidential information and the risk of exploitation of relationships with customers developed in the course of employment.

The court determined that a six-month restraint throughout the whole of Queensland was reasonable and orders restraining the employees were made.

The full case can be read here:

http://archive.sclqld.org.au/qjudgment/2015/QSC15-155.pdf

For more information please contact: Evan Sarinas of Sarinas Legal.

This release is not intended as legal advice and all liability is disclaimed for reliance on it.

12 July 2015

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