Employee Restraint of Trade Voided

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Tuesday, December 1, 2020

Employee restraint of trade voided by non-compliance with contract by employer

Employment restraints are vital for employers in order to protect their goodwill and client base developed in their business over numerous years.

Employment restraints usually restrain employees from poaching staff, poaching clients, setting up a competing business and working for a competitor, both during and after the employment has ended.

"Aherns Lawyers  have advised employers and senior employees on employment contract issues for 25 years."

Please see Breaches of Restraint of Trade Clauses for detailed information on claims involving breaches of restraint clauses in employment contracts.

The law prohibits unreasonable restraints.  Unreasonable restraints are not enforceable unless they are reasonably necessary to protect the legitimate interests of the business such as trade secrets, confidential information and relationships with suppliers/clients or other employees.

Having an enforceable and valid restraint trade clause in an employment contract is vital if an employer seeks to rely on it to enforce a former employee's post-employment obligations.

Restraints of trade in employment contracts may be difficult for an employer to enforce if they have not performed their contractual obligations. This was made clear in a recent decision by the Supreme Court of Victoria (SCV) in a contractual dispute between Crowe Horwath (CHA) and its ex-employee Anthony Loone (Loone).

Our practice is located outside of the Perth CBD and because of this our hourly rates and fixed prices for commercial work and for litigation are 20% lower than the standard rates charged by most Perth law firms.  Our rates are extremely competitive compared to the rates charged by other commercial law firms. 

When Loone terminated the contract on 12 July 2016 CHA applied to the Court and obtained an interlocutory injunction which prevented Loone from providing accounting services to 89 clients with whom he had dealings with in the previous 12 months.

Loone sought to establish that the Restraint did not survive termination of the contract because CHA had repudiated the contract. 

The problem for the employer in this case was that it had not paid bonuses to Loone that were owed to him, which was a repudiation of the contract.

In light of this case, it is unlikely that Courts will enforce a restraint of trade in circumstances where the employee has terminated the contract as a result of the employer’s repudiatory breach.

If you are an Employer or an Employee and would like more information contact Aherns Lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

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