A restraint of trade clause with 8,190 separate covenants was considered certain and not wholly unreasonable in a decision of the Supreme Court of Tasmania (Court).
In Australia, restraint of trade clauses are, on the face of it, void as a matter of public policy. However, Australian Courts may enforce a restraint of trade clause to the extent it is reasonable to protect the former employer’s legitimate business interests.
The decision arose from an application made by Bulk Frozen Foods Pty Ltd (Company) in which the Company sought a declaration that the restraint of trade clause in its General Manager’s employment contract (Restraint) was valid and enforceable. The General Manager had been with the Company for just over 6 months before resigning to take up a position with a competitor.
Significantly, the Restraint was drafted with cascading provisions prohibiting 7 specified capacities in which the General Manager could not engage in; 15 specified competitive activities; within 13 specified geographical areas and for 6 specified time periods. The Restraint expressly provided that the General Manager entered into each covenant resulting from a combination of each of the separate cascading provisions. This resulted in a total of 8,190 separate covenants, 8,190 being the product of multiplying 7 x 15 x 6 x 13.
The Court found that the Restraint was not void for uncertainty, and not wholly void for unreasonableness. The Court deemed the least onerous covenant – the General Manager would not, for 1 month, be engaged as a manager in a business that sold wholesale frozen foods within 50km of Hobart Post Office – to be reasonable and enforceable in the circumstances.
In reaching this decision, the Court:
- pointed to the need for restraint clauses to “reveal an intention to restrain the former employee in relation to the widest range of behaviour, locality and time” which could be derived; and to constitute a “genuine attempt” to define the employer’s need for protection;
- regarded the cascading provisions as a precaution against the ‘all-or-nothing’ approach adopted by the Court in interpreting restraints clauses and therefore did not render the Restraint uncertain;
- found the Restraint was reasonable in that the General Manager had routinely been exposed to confidential information (relating to customers, products; and pricing) which could be used to the advantage of a competitor and to the detriment of the Company; and
- concluded that the Restraint was not wholly void, if any one of the 8,190 severable covenants were reasonable.