The recent case Network Ten Pty Limited v Seven Network (Operations) Limited and John Stephens [2014] NSWSC 692 (29 May 2014) in which the NSW Supreme Court found, on proper construction and interpretation of contractual terms, that a senior employee did not breach his employment contract. The decision affirmed the long standing principle that the tort of interference with contractual relations could not be made out without showing breach of contract.

The importance of a well drafted employment contract cannot be understated. In recent proceedings brought by Network Ten Pty Limited (Ten) against Seven Network (Operations) Limited (Seven) and John Stephens, Justice Stevenson of the Supreme Court of New South Wales considered the imposition of restraints on an employee arising from specific terms of a contract of employment. In doing so, he commented on the appropriateness of Justice Brereton declining to grant an injunction preventing an individual from working which would result in them being “idle” for extended periods of time. The decision highlights the challenges of drafting effective and enforceable employment restraints.

Relevant background

From February 2013, the Second Defendant, John Stephens, an experienced television programming executive, had been employed by the First Defendant, Seven, pursuant to a contract of employment (2013 Seven Contract). Relevantly, the 2013 Seven Contract stipulated that the term of the 2013 Seven Contract would expire on 31 January 2013, but was terminable by either party on three months’ notice in writing.

On 6 March 2014, Mr Stephens executed an employment agreement with Ten pursuant to which Ten appointed Mr Stephens as the Director of Scheduling and Acquisitions commencing on 9 June 2014 for an initial term of two years (Ten Agreement). On both 6 and 7 March 2014, Mr Stephens served on Seven notice of his resignation with the effect of terminating the 2013 Seven Contract.

Over the following days, Mr Stephens changed his mind and on 10 March 2014 he informed Ten that “he would not be commencing  employment”  with  them, withdrew  his  resignation  from  Seven  and executed a document entitled “Your Continuing Employment with Seven” which confirmed that Mr Stephens had withdrawn his resignation and would take up the post of “Head of International Development” (2014 Seven Contract).

In the proceedings, Ten alleged that Mr Stephens’ conduct amounted to a breach of the terms of the Ten Agreement and that Seven had intentionally interfered with the Ten Agreement. Ten sought declaratory and injunctive relief against both Mr Stephens and Seven.

The Decisions

On 17 March 2014, Justice Brereton refused to grant the interlocutory injunctive relief sought by Ten on the basis that to do so would have had the effect of sterilising Mr Stephens from working for any organisation apart from Ten for two years or create a situation where he remained “idle” for the same period.

On 29 May 2014, Justice Stephenson held that Ten was only entitled to declaratory relief that its agreement with Mr Stephens remained on foot and was otherwise not entitled to any other relief it sought. Ten’s claims were otherwise dismissed.

Critical terms of the Ten Agreement

The Ten Agreement provided: 

“This Agreement commences on and is effective from… the date of execution of this Agreement…”

Relevantly, Clause 2 of the Ten Agreement, headed “Term” provided at subclause  (a):

“Your employment under this Agreement commences on 9 June 2014 and continues subject to this Clause 2… For a maximum term of 2 years (“Initial Term”)”.

Clause 5 (b) provided:

“You agree that during the term of your employment, you will not solicit, encourage or accept any offer of employment from or offers to provide services to any other entity without TEN’s prior written consent and if you receive such an offer, you will immediately communicate the existence of the offer and its terms to TEN.” (Our emphasis)

Subclause (c) provided:

“You agree that, except with the written consent of the Chief Executive Officer during the term of your employment (including any leave of absence under clause 13c), you will not:

… iv. Become an employee, agent or contractor of another person;…” (Our emphasis)

Questions considered by the Court

Did Mr Stephens breach the terms of the Ten Agreement?

Justice Stevenson agreed with submissions made by Counsel for Seven that “if Ten is unable to establish a breach by Mr Stephens of the Ten Agreement, then its declaratory relief against Mr Stephens and its intentional interference claim against Seven fall away.

A breach of contract is the essence of the cause of action: Allen v Flood [1898] AC 1 at 121”.

His Honour noted that the “suggestion as may have previously existed in United Kingdom authority that the tort of interfering with contractual relations could be made out without showing breach of contract has now decisively been rejected by the House of Lords in OBG Limited v Allan; Douglas v Hello! Ltd; Mainstream Properties v Young [2007] UKHL 21; [2008] 1 AC 1”.

His Honour found it followed that “for Ten’s claim against Seven of ‘intentional interference’ to be established, Ten must first establish a breach of contract by Mr Stephens of the Ten Agreement”.

In determining that Mr Stephens was not in breach of the Ten Agreement, his Honour found that by Mr Stephens accepting Seven’s counter offer and accepting the terms of the 2014 Seven Contract, Mr Stephens did not breach the terms of the Ten Agreement. Relevantly, the Ten Agreement provided for Mr Stephens’ employment to commence on 9 June 2014 for a period of 2 years. The Ten Agreement expressly provided that during the term of Mr Stephens’ employment he was prohibited from soliciting, encouraging or accepting any offer of employment or offers to provide services to any other entity without Ten’s prior written consent and such offers would be immediately communicated to Ten. Additionally, Mr Stephens agreed that during the term of his employment he would not “Become an employee, agent or contractor of another person…”.

Ten alleged that Mr Stephens was in breach of clause 5(b) and (c)(iv) of the Ten Agreement by reason of his entering into the 2014 Seven Contract. His Honour dismissed these allegations on the basis that pursuant to clause 2 of the Ten Agreement, the term of Mr Stephens’ employment with Ten did not commence until 9 June 2014. The construction and wording of clause 2 was always intended to convey the term of employment commencing on 9 June 2014 because as his Honour noted “Ten always understood and accepted that Mr Stephens would have to work out his three month notice period with Seven”.

His Honour found that Mr Stephens did not engage in conduct that was contrary to clauses 5(b) or 5(c)(iv) of the Ten Agreement.

As an aside, his Honour noted that while the following view was not advanced by Ten, by reneging on the Ten Agreement, Mr Stephens repudiated his obligations under the Ten Agreement. Ten could have accepted the repudiation and rescinded the Ten Agreement looking to Mr Stephens for damages or such other relief that may be available. Absent the acceptance by Ten of a repudiation, the Ten Agreement remains on foot.

His Honour held this finding was sufficient to dispose of Ten’s claims against Mr Stephens and Seven. Ten did not establish a breach of the Ten Agreement by Mr Stephens and therefore it follows that the cases against both Mr Stephens and Seven failed.