Published 28 May 2017
In a recent case, Naiad Dynamics US INC v Vidakovic, the Supreme Court of Western Australia granted an injunction to prevent an employee from working for an Australian employer until the enforceability of a restraint of trade clause which was governed by the law of Connecticut, USA could be determined at trial.
Dr Vidakovic was employed by Naiad, a company incorporated in Connecticut and in the business of designing, engineering, manufacturing, installing and selling maritime equipment. Dr Vidakovic resigned from his position as global sales director with Naiad and his last day of employment was 15 January 2017. He commenced employment with an Australian company, Veem, a business which is competitive to Naiad and located in Perth on 24 January 2017.
Naiad claimed Dr Vidakovic breached his obligations relating to confidential information and not working for a competitive business by commencing employment with Veem and making copies of and removing confidential files belonging to Naiad. Dr Vidakovic’s employment agreement was clear that the law of Connecticut would apply.
Naiad was granted an interlocutory injunction in March to prevent Dr Vidakovic from working with Veem or related entities and sought a further injunction to prevent him from being employed or engaged with Veem for a period of 2 years.
Dr Vidakovic claimed he was not bound by the employment agreement because Naiad repudiated it by refusing to pay him severance, as required by the agreement. Naiad contended they did not repudiate the contract because Dr Vidakovic was not entitled to a severance payment as he was not dismissed but resigned.
Dr Vidakovic claimed the clause restraining him from working for competitors was not enforceable as it was not necessary to protect Naiad’s legitimate interests. Further, Dr Vidakovic claimed the harm he would experience if an injunction was granted would be greater than the benefit to Naiad.
In determining whether Naiad repudiated the employment contract, the Supreme Court of Western Australia considered what a “reasonable businessperson” would have found the contract to mean. The Court found a prima facie case, meaning there was sufficient likelihood, that Naiad was not required to pay severance to Dr Vidakovic because he resigned.
The Court accepted the view of Mr Greene, an attorney admitted to the Bar in the State of Connecticut who provided expert evidence on behalf of Naiad, that the enforcement of non-compete clauses in Connecticut were dependant on the time length of the restriction, the geographic scope, fairness, the extent the restriction prevents the employee from working and the extent of interference with the public interest. Pursuant to Connecticut law, the employer has the burden of demonstrating a breach and the employee has the burden of demonstrating unreasonableness. The Court noted the test in Connecticut was disjunctive, in that if any of these factors were breached, the restraint would generally be unenforceable.
The Court found the restraint was supported by adequate consideration and was restricted by time and place. As Naiad had business in Australia and engaged with clients in Australia, it could not be found that the restraint applying to Australia was unreasonable.
Further, it could not be definitively proved that Dr Vidakovic would be prevented from supporting his family if the restraint was enforced.
The Court found damages to be an insufficient remedy for Naiad if the restraint clause was found to be valid, because the loss would relate to good will and customer connection, which was not subject to “precise quantification” to allow damages to compensate.
The Court found that although an injunction would cause great loses to Dr Vidakovic, the damage to Naiad’s business would be “irreparable” and Dr Vidakovic had agreed to the restraint at the time of agreeing to the employment agreement. Further, the Court found that the restraint was prima facie enforceable and as such, Dr Vidakovic should be held to his bargain unless and until it is determined at trial that the restraint is unenforceable.
Therefore, the Court granted the injunction and restrained Dr Vidakovic from being employed by Veem or a related entity until after the enforceability of the restraint was determined at trial.