When Mr Pearson resigned from his employment with HRX, it brought proceedings to prevent him from taking up employment with one of its competitors, Talent2. HRX’s claim was based on a clause in Mr Pearson’s service agreement, which sought to preclude him from working in a competitive business for a period of 2 years after the termination of his employment with HRX. The primary judge, Justice Buchanan, held that the restraint was reasonable and therefore binding on Mr Pearson.
Mr Pearson appealed to the Full Court of the Federal Court, arguing that the restraint was not reasonably necessary to protect any legitimate interest of HRX because:
- the restraint prevented him from competing with HRX for 2 years, anywhere in the world for the business of customers who had never been customers or prospective customers of HRX; and
- his contract also contained separate non-solicitation and confidentiality provisions, which would protect any legitimate interest of HRX.
The Full Court, consisting of Chief Justice Keane and Justices Foster and Griffiths, upheld the primary judge’s finding that the 2 year restraint was a reasonable manner of protecting HRX’s legitimate interests. The evidence relied on by the Full Court in coming to this conclusion included the following:
- Mr Pearson was active in the establishment and direction of HRX’s business and, during his employment, he had access to virtually all of HRX’s confidential business information.
- In his position at HRX, Mr Pearson had insisted that HRX staff be subject to some level of post-employment restraint after they left HRX’s employment. Mr Pearson had himself negotiated staff restraints on behalf of HRX.
- The terms of Mr Pearson’s restraint were negotiated over a period of some months and, as agreed, provided for his salary to be paid to him by HRX during all but three months of the restraint period. This was despite the evidence that HRX did not favour making payments during the period of post-employment restraint.
The Full Court also referred to the fact that Mr Pearson was the “human face” of HRX in its dealings with customers and in the pursuit of new business. In this regard, the Full Court noted the well established principle that an employer’s customer connection is a legitimate business interest that can support a reasonable restraint of trade where the employee in question controls the employer’s customer connections.
Accordingly, it was held that HRX’s interest in protecting its customer connections was sufficient to justify HRX’s bargaining for protection against the risk that the personal contacts made by Mr Pearson would follow him to a new employer. That interest, it was said, went beyond HRX’s interest in confidential information and would not sufficiently be protected by the confidentiality provision in Mr Pearson’s service agreement.
Further the Full Court found that the non-solicitation provision in Mr Pearson’s service agreement would not have protected HRX from the risk that its customers, knowing of Mr Pearson’s move to Talent2, would choose to move their business to Talent2 “unbidden by Mr Pearson and without even discussing the move with him”. It was also found that the non-solicitation clause might not provide practical protection to HRX if it did not become aware of a breach. In fact, the Full Court made note of an email sent by Mr Pearson to an existing client which read:
“I cannot solicit your business… but I believe you can solicit my services if you know what I mean.”
The Full Court stated that but for the proceedings, this email may not have come to light, yet Mr Pearson had argued that the non-solicitation clause was enough to protect HRX’s legitimate interests.
The Full Court also held that the 2 year restraint reasonably accommodated the contractual cycle on which HRX operates, giving HRX the opportunity to effect a renewal of its contracts with customers without the risk that the customer would choose to “stay” with Mr Pearson.