In DP World Sydney Ltd v Guy [2016] NSWSC 1072, White J clarified a number of the principles that are used to determine whether a restraint of trade clause is enforceable. In so doing, he highlighted some important lessons for employers and executive employees.
Facts
DP World Sydney Ltd (‘DPW’) applied for an interlocutory injunction to prevent Mr Guy from commencing employment with a competitor called Asciano Executive Services Pty Ltd (‘Asciano’). Mr Guy was previously employed as a General Manager of DPW’s operations at the Port Botany Terminal. His contract of employment included both a three month restraint clause and a three month gardening leave clause. In essence, this meant that he would not be able to work for a competitor for a period of six months as his three month restraint clause wouldn’t commence until his three month gardening leave period had expired and he could not work for a competitor whilst on gardening leave.
Enforceability of the Restraint
White J said that the following facts all supported the six month restraint period being enforceable:
- Mr Guy had a senior position at DPW.
- In his role at DPW, Mr Guy had access to confidential business information concerning the way in which tariffs, incentives and penalties were calculated and charged to clients.
- Mr Guy also had access to business plans and financial information, including data concerning past and anticipated earnings, costs, budgets, capital expenditure and expansion plans.
- Mr Guy had developed a range of connections with customers and clients of DPW by attending pitch meetings.
White J placed significant emphasis on the confidential information and trade secrets to which Mr Guy had had access during his employment with DPW. This is because:
“[t]he justification for the restraint of an employee against taking up employment with a competitor is not to protect the employer from competition. Its justification is that such a restraint is necessary … to protect the employer from either a witting or an unwitting disclosure of … confidential information”
Undertaking
During the proceedings, Mr Guy provided an undertaking that, if he was to work for Asciano, he would not solicit or accept an approach from a number of specified clients of DPW. White J held that this was insufficient to meet the legitimate needs of DPW so as to make the restraint unenforceable. This was due to the fact that the restraint protected DPW’s confidential information. It was not simply there to protect it from competition.
Hardship
Mr Guy also said that he would be subject to financial hardship if an injunction restraining him from working at Asciano was granted. This submission was not accepted, as DPW had agreed to pay Mr Guy an amount to cover the three months’ salary that he was required to forego on account of the fact that he could not take up employment immediately after his gardening leave came to an end.
Lessons for Employers
Employers should be careful about drafting non-compete clauses that seek only to insulate them from competition. Generally, a restraint will not be enforceable unless it is targeted to the protection of the employer’s confidential information or trade secrets. The length of the restraint should depend upon the extent to which the employee has had access to such confidential information, and the importance of that confidential information to the employer’s business.
Lessons for Executive Employees
Executive employees should be mindful of the fact that contracts can include both restraint of trade and gardening leave clauses. This can operate to extend the period during which they will not be able to take work for or set up a competitor.
Further, employees should ensure that, if they give an undertaking to their previous employer as a way of preventing proceedings being taken against them, the undertaking should relate to the use and disclosure of confidential information to which they have had access. It should not simply state that the employee will not approach specified clients.
How can JFM Law help?
If you are an employer looking to enforce a restraint of trade clause or an employee concerned about a restraint of trade clause in your employment contract, contact JFM Law on (02) 9199 8597 for a no obligation chat. If you would rather get in contact through email, send your question through or by email at wehelp@jfmlaw.com.au
The information contained in this post is current at the date of editing – 27 November 2023.