A recent decision of the Victorian Supreme Court in Just Group Ltd v Peck has brought sharply into focus the circumstances in which even though an employer can establish that it has a legitimate interest in protecting its confidential information, a post-employment restraint of trade clauses that is too wide can be found to be unreasonable hence unenforceable. The case also brings into sharp focus the proposition that robust and widely drafted restraint clauses can render them unenforceable. Finally, the case highlights unsatisfactory situation that currently exists whereby contracts formed in NSW containing restraint of trade clauses may be treated quite differently by courts to those where the contract was formed in other states.
Notwithstanding being able to establish that having regard to the duties of Ms Peck as the CFO of the Just Group, it had had a legitimate interest in protecting its confidential information, the Just Group was unable to pursued the court that the restraints contemplated in the contract were reasonable and necessary to protect that interest.
In an apparent attempt to dance around the drafting of the contract, the Just Group asked the court to (in effect re-write) parts of the restraint of trade clauses or to place meanings on the effect of the clauses that submitted were in the mind of the parties when the contract was agreed. However, these interpretations were not supported by the facts and the words of the contract and were rejected.
The Court concluded that on the facts, the restraints were not reasonable and as such they were not enforceable leaving Ms Peck free to commence employment with Cotton On.
The Court also noted that had the contract been formed in NSW, the result may have been different by virtue of the effect of section 4 of the Restraints of Trade Act 1974 (NSW).
The full judgment of the case can be found at http://www.austlii.edu.au/au/cases/vic/VSC/2016/614.html
The NSW Restraints of Trade Act can be found here; Restraints of Trade Act 1976
If you need advice regarding post-employment restraint of trade clauses, please drop Michael Doherty an email at email@example.com or call on 02 8667 3094