JWS represented  Seven Network (Operations) Pty Limited (Seven)  and its executive  programmer John Stephens in successfully defending the Supreme Court proceedings  brought against them by Network Ten Pty Limited (Ten). JWS also recently achieved a  successful outcome for Yahoo!7 Pty Ltd (Yahoo!7) in the proceedings brought against their  new CEO by Fairfax Media Management Pty Ltd (Fairfax). These cases highlight important  issues relevant to the departure and recruitment of senior executives. 

The judgement handed down on 29 May 2014 in Network Ten Pty Limited v Seven Network  (Operations) Pty Limited & Anor [2014] NSWSC 692 provides important guidance for  employers regarding the recruitment of employees and the making of counter-offers to  employees who have accepted employment elsewhere. 

Background

Mr Stephens was employed by Seven and signed a contract of employment with Ten on 6  March 2014 (Ten Contract). The contract was for a fixed term of two years commencing on  9 June 2014, after the expiry of his notice period with Seven. On 7 March 2014, Mr  Stephens resigned from Seven by providing 3 months’ notice and was required to work out  the notice period. On 10 March 2014, Mr Stephens accepted a counter-offer by Seven. Mr  Stephens then notified Ten that he withdrew his acceptance of the Ten Contract.

Orders sought

Ten commenced  proceedings against Mr Stephens for breach of  the Ten Contract and  against Seven for inducing the breach of contract. Ten sought to restrain Mr Stephens from working  at Ten’s competitors and to restrain Seven from assisting, inducing or otherwise  procuring Mr Stephens to not comply with his obligations under the Ten Contract. 

Outcome

On 17 March 2014, Justice Brereton declined to grant Ten’s application for  interlocutory  injunctive relief  on the basis that  granting  the injunction would effectively “sterilise” Mr  Stephens from working for anyone but Ten for two years  against his will or force him to  remain “idle” for that period.

In the final decision, Justice Stevenson held that Ten was only entitled to a declaration that  the Ten Contract remained of foot and as it was not otherwise entitled to any of the relief  sought, Ten’s claim was dismissed. Importantly, His Honour held that:

  • by accepting Seven’s counter-offer, Mr Stephens did not breach the terms of the Ten Contract because it only prohibited him from soliciting or accepting any offers of  employment from any other entity without Ten’s prior consent “during the term of his  employment” with Ten, which would have only started on 9 June 2014; 
  • as there was no breach of the Ten Contract, Seven could not have been found to have  knowingly procured any breach. However, an employer can be found to induce a breach  of contract if it merely intends to interfere with contractual rights and that is one of the  reasons for the breach.  This applies even if the employer does not know all the relevant  terms of the contract and its conduct did not alone cause the breach; and
  • he would not grant the injunctive relief sought by Ten even if he had found that Mr  Stephens had breached the contract because if would effectively force Mr Stephens to  work for Ten or remain “idle” for two years. Fairfax Media Management Pty Limited v Harrison [2014] NSWSC 470 is an important case  considering post-employment restraint obligations.

Background

Mr Harrison  was the Group Sales Director at Fairfax who, after resigning from Fairfax in  December last year, commenced  employment  with Yahoo!7 as CEO on 9 April 2014. Mr  Harrison was subject to a 6 month restraint period under his contract with Fairfax which was  to expire on 11 June 2014.

Mr Harrison’s  contract with Fairfax  contained  a  12 month non-solicitation and a 6 month non-compete restraint. The non-compete restraint purported to prevent Mr Harrison from  being involved in a business competitive with his “Business Unit” at Fairfax and commenced  to run after notice of termination of the employment was given. 

Outcome

Although Mr Harrison commenced working for Yahoo!7 before the 6 month non-compete  expired, Mr Harrison provided undertakings to the court regarding compliance with the nonsolicitation restraint and the confidentiality obligations.

Justice Ball was satisfied that Fairfax had a strongly arguable case that the restraint of 6  months was reasonable.

However, Ball J exercised his discretion to refuse the relief sought by Fairfax based on the  following three factors:

  • there was little risk that Mr Harrison would be able to make use of  the  customer  connections he had developed while at Fairfax given the restraint would only run for a  further 7 weeks and in view of the undertakings offered by Mr Harrison. Moreover, the evidence showed that Yahoo!7 already had strong relationships with  the relevant  customers and Mr Harrison  would  not be directly involved in negotiations of  their  contracts;
  • there was little evidence of the risk of Mr Harrison using confidential information to the  detriment of Fairfax; and
  • Fairfax had delayed approximately 3 weeks before replying to Yahoo!7’s letter putting it  on notice of Mr Harrison’s proposed commencement date.  Fairfax also delayed for a  further week after finding out Mr Harrison had actually commenced employment with  Yahoo!7, before commencing the proceedings. The delays were substantial in  the context where the injunction sought would only last for 7 weeks and would be disruptive  to Mr Harrison and Yahoo!7

Lessons for employees

  • Employment contracts with key employees should stipulate that non-competition and  similar obligations commence when the contract is signed, unless otherwise agreed.
  • Recruiters and prospective employers should be cautious not to engage in discussions  regarding offers of employment with candidates unless they are fully informed of the  terms of the candidates’ current employment  contracts. This particularly applies to  negotiating counter-offers with current employees who have already signed a contract  with another employer.
  • Employers  seeking to enforce compliance with post-employment restrictive covenants  must act swiftly as any delay may sway the courts discretion against granting the relief.  Even a week’s delay may be too late.