Employee subject to 6 month restraint of trade to protect former employer’s confidential information

An employee was restrained from working for a competitor of his former employer for six-months after the Supreme Court of New South Wales found the restraint was not unreasonable to protect the employers ‘legitimate interests in preserving its confidential information’.

 

Mr Guy commenced employment with the plaintiff in the senior position of General Manager (Operations) of the Port Botany Terminal. His contract required he give three months’ written notice if he wished to resign. Additionally, the contract included a restraint of trade clause that lasted for three months ‘starting on the date of termination of your employment’.

Mr Guy accepted a position with a competitor of the plaintiff, Asciano, and gave written notice of his resignation, clarifying that as per his employment contract, his last day of employment would be 28 July 2016.

The plaintiff confirmed Mr Guy’s resignation and placed him on gardening leave, requiring him to ‘remain at home during [his] notice period’. The plaintiff also mentioned the restraint of trade clause and stated this restraint would begin after his termination and last until 27 October 2016.

Mr Guy argued that his time on gardening leave should count towards the restraint period as otherwise the plaintiff would be imposing a six-month restraint period, where only three months was provided in his employment contract. He further claimed that the restraint clause started when the employment relationship ended, being 28 April 2016 when he resigned and was placed on gardening leave, as opposed to when the contract of employment ended.

The plaintiff argued Mr Guy’s employment ended on 28 July 2016 and this was when the restraint period would start. They sought an interlocutory injunction, as it was accepted the matter would likely not be determined before the end of the restraint period. The plaintiff offered to pay Mr Guy the three-month salary he would have received at Asciano from 29 July 2016 until the end of the restraint on 27 October 2016.

Decision

The Court found both the employment relationship and the contract of employment was terminated on 29 July 2016 and the restraint period did not start until this day. This was because neither party repudiated the contract and they both accepted that the contract ‘remained on foot’. Further, the Court believed the interpretation put forward by Mr Guy would result in an ‘unreasonable outcome’, resulting in a contract that did not have ‘commercially sensible operation’.

 The Court granted the interlocutory injunction. It found Mr Guy held ‘confidential information and trade secrets’ that could be detrimental to the plaintiff. Therefore, the plaintiff was entitled to impose a six-month restraint to protect their legitimate interests and confidential information.

In making this order, the Court found the delay in commencing the proceedings did not cause a significant prejudice to Mr Guy, especially as the plaintiff offered to pay him the equivalent of three months’ salary.

The Court ordered Mr Guy be restrained from:

  • Working for Asciano or any related body corporate;
  • Engaging or preparing to engage in activity similar to any part of the plaintiff’s business;
  • ‘Soliciting, canvassing, approaching or accepting any approach from any Customer or Supplier … with a view to obtaining the custom or supply of that customer of supplier in a business that is the same as or similar to any part or parts of the Business’;
  • ‘Interfering with the relationship between any Group Member … and any of their customers, suppliers, Group Employees or contractors’;
  • ‘Inducing or assisting any Group Employee to leave their employment with a Group Member’; or
  • Disclosing or using the plaintiff’s confidential information.

The plaintiff was ordered to pay Mr Guy the amount of approximately $72,500 less superannuation and tax to cover the three-month period he is unable to work for Asciano as a result of the restraint.

Read the full decision here

* PCC Lawyers are a team of employment practitioners based in Sydney, with many years of combined knowledge and experience in workplace law, industrial relations, workplace investigations and training.  They provide a high standard of excellence and an exceptional level of personal service to a variety of clients in the Sydney metropolitan area, Central Coast, regional NSW and interstate. 

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