Why (most) Post-Employment Restraints are Illegal
Slavery was outlawed in the British Empire (including Australia) by 1833. The United States took a little longer but, even with a civil war to decide the question, slavery was outlawed there too by 1865.
What is the relevance of this to post employment restraints?
Post employment restraints, without proper limitations, seek to turn employees into modern day slaves – unable to pursue their career if they cease working for their current employer.
Courts justifiably refuse to enforce restraints of trade on the grounds of public policy. The Supreme Court and Court of Appeal recently took the opportunity to remind employers of the relevant principles in Just Group Ltd v Peck [2016] VSC 614 and [2016] VSCA 334.
Employers get one shot to put a valid and enforceable restraint in place. There need to be special circumstances that demonstrate the restraint is:
(a) reasonable as between the parties; and
(b) not unreasonable in the public interest.
The overall situation is relevant. Employment restraints are harder to enforce than, for instance, a restraint in a sale of business.
A restraint clause in favour of an employer will be reasonable as between the parties, if at the date of a contract the restraint clause is imposed to protect a legitimate interest of the employer and the restraint clause does no more than is reasonably necessary to protect that legitimate interest in its duration or extent.
It is well established that employers have a legitimate interest in protecting confidential information / trade secrets and customer connections. An employer may restrain an employee from being involved with a competing business that could use the confidential information.
The secret to drafting a valid restraint is for employers to have a tight and well defined restraint. In Just Group Ltd v Peck, the employer went too far. It listed 50 businesses that the employee was not to work for in any capacity after she left employment. The Court was not prepared to read down the restraint so as to make it enforceable as this was seen as rewriting an invalid restraint after the fact.
The Court of Appeal gave a stinging rebuke to the Just Group by citing a statement made by Justice Heydon some years earlier “The courts are referees, not players; they are not supposed to waste their time adapting illegal covenants at the instance of those who seek to benefit from the illegality”.
An employer has one shot to get this right by putting a valid and enforceable restraint in place at the time of contracting. An army of Queens Counsel will not be able to cobble together an invalid restraint after the fact.
Tisher Liner FC Law is experienced in drafting, reviewing and enforcing post-employment restraints. For more information please contact Simon Abraham or a member of the Employment Law Team.
