The Victorian Court of Appeal has upheld the validity of a non-compete clause in the contract of employment of an employee engaged as a "supervising accountant" for a firm of chartered accountants (First Employer): Birdanco Nominees Pty Ltd v Money  VSCA 64.
The First Employer sought to enforce the non-compete clause after the employee resigned from employment to work part-time for a company which was then a client of the First Employer, and part-time for another firm of accountants (Second Employer). Following this, the client terminated its retainer with the First Employer and engaged the Second Employer to perform financial services on its behalf. The restraint required the employee to pay a significant monetary penalty if he solicited or canvassed any person who as a client of the First Employer as at his date of termination (for whom he provided "services" during his employment) or acted for an entity that was a client of the First Employer (for whom he provided "services" during his employment) for a period of three years following his date of termination.
The restraint was held to be enforceable because it protected the interest of the First Employer in its "trade" connection or goodwill. The court emphasised the fact that the restraint did not prevent the employee from competing with the First Employer. Rather, it merely imposed liability to pay damages if he chose to do so. The judgment confirms the well-established law regarding the test for the enforceability of restraint clauses; being the reasonableness of their nature and coverage as at the time the restraint is entered into.
When drafting restraint clauses, it is always important for employers to bear in mind "how soon the hold of the old employee over customers will weaken". Clauses drafted more broadly than this run the risk of being held to be unenforceable by Australian courts.