The Tasmanian Supreme Court has recently upheld the validity of a restraint clause which provided up to 8,190 separate covenants.1 This is consistent with a similar approach taken by Australian courts, but it is the first time such a wide‑ranging clause has been deemed valid.
Mr Excell was employed as General Manager of Bulk Frozen Foods Pty Ltd, and resigned to join a competitor. Mr Excell’s contract contained clauses covering his post-employment conduct; restricting his engagement in certain other employment and preventing disclosure of Bulk Frozen Foods’ confidential information.
Bulk Frozen Foods sought a declaration that these provisions of Mr Excell’s contract were valid and enforceable, an injunction to prevent Mr Excell engaging in action in breach of the contract, as well as an order for delivery up of any Bulk Frozen Foods property in Mr Excell’s possession.
The relevant clause of Mr Excell’s contract provided 8,190 separate covenants which could apply to him.
Chief Justice Blow held that the restraint clause was valid and enforceable after examining the facts and circumstances of Mr Excell’s position with Bulk Frozen Foods.
Was the restraint clause uncertain?
In order to determine if the clause was void for uncertainty, Chief Justice Blow reviewed past case law examining restraint clauses with various, and often far reaching, covenants including the much cited case of JQAT Pty Ltd v Storm2 which upheld a clause with 18 possible combinations.In this decision, the Court determined that a series of overlapping covenants would not make a restraint clause uncertain. Rather, the possible combinations of the clause demonstrated an intention to restrain an employee in the widest way as can be derived from its provisions.
Among other cases, Chief Justice Blow also examined the leading authority in New South Wales (Hanna3) which applied the reasoning in the Storm decision to uphold a restraint clause with nine separate covenants. Chief Justice Blow referred to the principles derived from Hanna, in particular noting that no specific hierarchy of clauses is required for a restraint covenant to be valid, though observing that a restraint clause may be uncertain where the clause is so impenetrable, due to the possible combinations, that it lacks coherent meaning.
Among other cases, Chief Justice Blow also examined a Western Australian decision4 where a clause with 40 possible meanings was held to be void for uncertainty. In that decision, Justice Templeman held the clause uncertain as the numerous permutations did not show “a genuine attempt to define the plaintiff’s need for protection”.
In that particular decision, the permutations ranged from carrying on a business within five kilometres for a period of three months, to a 12 month restraint operating within a 500 kilometre radius of each of their 26 offices in Australia.
However, Chief Justice Blow distinguished this from the present case where, at most, the restraint would extend for 6 months and cover the whole of Tasmania, preventing Mr Excell from working or being involved in any competing business. Chief Justice Blow acknowledged that whilst the clause in question provided a very large number of possible combinations, he would nonetheless follow the earlier line of case law, and deem the clause to be certain as it was a genuine attempt to define Bulk Frozen Foods’ need for protection.
Was the clause unreasonable?
In considering whether the clause was unreasonable, Chief Justice Blow was required to consider the general rule that restraint clauses are against public policy and void, unless the restriction is reasonable because it affords adequate protection to the party seeking to impose the restraint and does not impact the public.
Specifically, it must be shown that there is some property or interest to be protected, such as confidential information or trade secrets. Protecting mere general skill or knowledge will be insufficient to justify the validity of a restraint clause.
Chief Justice Blow then considered the relevant facts and circumstances including: in Mr Excell’s position as manager, he was provided with confidential information concerning customers, product quantities and prices, profit margins, sales figures and expenses, employee wages and conditions, and supply prices. Further, the circumstances at the time of creation of the contract did not change, and at all relevant times, Mr Excell was exposed to confidential information which could reasonably be protected by a restraint of trade provision.
On these bases, Chief Justice Blow determined that the clause was not void for uncertainty or unreasonableness.
Bottom line for employers
This case highlights the often uncertain nature of a court’s approach in upholding restraint of trade clauses. Employers should bear in mind the following points when considering including restraint of trade in employment contracts:
- the relevant facts and circumstances of the employee’s position will always be relevant;
- exercise caution when drafting restraint clauses, and ensure they are appropriate for and tailored to the employee’s role within your organisation;
- ensure, where possible, that you have other measures in place to protect confidential information, other than relying on post-employment restraints. For example, by restricting access to information where appropriate. Do not assume that your restraint clause will be valid and enforceable; and
- seek legal advice before drafting, implementing and enforcing a restraint clause, and do not rely on generic clauses applying to all employees.