Employers should ensure that post-employment non-solicitation and client restraint of trade clauses should not extend to clients that an employee has had no significant influence on, or connection with. The inclusion of a requirement to obtain ‘prior written consent’ from a previous employer is unlikely to render an unduly wide post-employment restraint of trade clause operable.
O’Shea was employed as a business development manager by Emeco International Pty Ltd (Emeco), a company which carries on the business of dry hiring mobile mining equipment in primarily Western Australia and South Australia. As one of Emeco’s senior employees, O’Shea’s employment contract contained post-employment restraint of trade clauses (Restraints) which among other things prevented O’Shea from, without the prior written consent of Emeco:
- providing or taking part in the provision of consultancy services or performing work for, or providing products or services to, a business competitive with Emeco’s business (the Competitor Restraint);
- canvassing, soliciting or enticing away the business of any of Emeco’s clients (or attempting to do so) (the Non-Solicitation Restraint); and
- performing work for, or providing products or services to, any of Emeco’s clients, except where these products or services did not involve or relate to the products or services provided by Emeco (the Client Restraint),
within Western Australia and for a period of 6 months after the termination of O’Shea’s employment with Emeco.
After 21 months of employment, O’Shea resigned and entered into an employment contract with National Plant and Equipment (NPE), one of Emeco’s major competitors.
Emeco sought an injunction to enforce the Restraints in O’Shea’s employment contract. Among the issues considered were whether any or all of the Restraints were valid and enforceable, and whether O’Shea’s employment with NPE breached these Restraints (if found to be valid and enforceable).
The effect of “without prior written consent” qualification on the Restraints
It was accepted by both parties that “without prior written consent” implied that consent would not be unreasonably withheld, despite the lack of Australian case law on this matter. After considering English case law, the Court noted that such a qualification may affect the scope of a restraint of trade clause, but would not make a wide restraint clause operable. However, the Court did not decide on the extent to which the qualification would weigh in favour of restraint enforceability as Emeco did not rely on this to a significant extent.
Was the Competitor Restraint valid?
The Court found that it was reasonable to expect O’Shea had retained confidential information which could be used to the detriment of Emeco and that the Competitor Restraint was valid. O’Shea’s role as a business development manager involved developing relationships of trust with clients, which included O’Shea gaining knowledge of confidential issues particular to individual clients. The Competitor Restraint’s scope was also appropriate due to the highly competitive nature of the industry in which Emeco operated.
Were the Non-Solicitation or Client Restraints valid?
The Non-Solicitation and Client Restraints were found to be invalid, due in part to the breadth of the definition of “client” in these Restraints. The Court held that although the Non-Solicitation and Client Restraints were not automatically unenforceable because they extended beyond clients with whom O’Shea had dealt, they extended to clients with whom O’Shea had no significant influence or connection.
The Court exercised its discretion and granted an injunction to restrain conduct inconsistent with the Competitor Restraint.
See the case.