Employment agreements that contain restraint provisions against staff are often unenforceable. If the restraint is too broad or too long, or both, it will be regarded as contrary to public policy. However, a restraint is likely to be upheld if found reasonable to protect a legitimate interest of the employer.
In a recent decision of the Supreme Court of New South Wales (Helensburgh Property Management Pty Ltd v Brady [2015] NSWSC 1861) the owner of a real estate agency successfully had a post-employment restraint against a former employee upheld.
Facts
In this case, the employer, Helensburgh Property Management Pty Ltd, was successful in establishing that the employee, Ms Emma Brady, had breached the terms of her employment contract with the employer, by setting up a business in competition, poaching clients and misusing confidential information while still employed for the employer.
The employee had established a company All Over Rentals Pty Ltd (All Over Rentals), operating in the same area as the employer's agency and competing with the employer in the management of rental properties. The employee admitted to enticing 25 of the employer's clients away from the agency to All Over Rentals both before and after the termination of her agreement.
Importantly, Justice Bergin was satisfied the post-employment restraint of 6 months and a 15 kilometre radius from the employer's agency was reasonable in all the circumstances and not against public policy.
Damages
In the later damages proceedings (Helensburgh Property Management Pty Ltd v Brady [2016] NSWSC 253) Justice Bergin rejected the plaintiff's argument that damages should be awarded for the capital value of the lost clients. In particular, evidence adduced by the former employee and statements of the lost clients found that the clients would have left after 6 months irrespective of the employee's breach of the Contract.
Accordingly, damages were assessed on the basis of the loss of commissions of the properties during the restraint period in the amount of $33,740. We fear the plaintiff agent's unrecoverable legal costs would have exceeded this sum.
Consequences
This decision highlights the importance for employers to have a reasonable restraint clause integrated into their employment agreements. Where a restraint is imposed on an employee, it is critical the wording of that restraint is clear to ensure the employee understands the limitations under which they must work and conduct themselves post-termination. There is no point having a term in an employment agreement in place if you cannot enforce it when necessary.
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