The recent case of Just Group Ltd v Peck  VSC 614 serves as a timely reminder to employers to review the post-employment restraints in their employees’ employment contracts to ensure the terms are carefully drafted and reasonable. Post-employment restraints are presumed to be unenforceable unless the employer can establish there is a legitimate business interest in imposing the restraint and that it is no wider than is reasonably necessary to protect that interest.
In the Just Group case, the Victorian Supreme Court found that a restraint of trade clause preventing a CFO from working for a rival fashion retailer was broader than what was reasonably necessary to protect Just Group’s legitimate interests, and was therefore unenforceable. As a result, the court rejected the company’s claims for relief and the CFO was allowed to continue working for Cotton On, a major rival of Just Group’s Just Jeans, Peter Alexander and Portmans.
Just Group argued that the “fierce competition” between it and Cotton On reasonably prevented the CFO from working with the rival retailer for up to two years. It also sought to ban her from using any of Just Group’s confidential information in her new employment.
Seems fair enough? Well, the contract precluded the CFO from engaging in “any activity” which was the same or similar to “any part” of Just Group Ltd both during and after her employment. It also restricted her from acting for or on behalf of up to 50 other entities and brands listed in her contract (including related entities) anywhere in Australia and New Zealand for a maximum period of 24 months.
Even though Just Group sought to have the restraint read down to apply only to the CFO’s employment with Cotton On, the court found that Just Group was unable to establish a legitimate business interest as the restraints prevented the CFO from working with competitors in positions where confidential information acquired during her time with Just Group was irrelevant to the new employer.
A reasonable restraint can often be achieved through a “cascading” clause that contains a series of overlapping restraints, which may read down to what a court considers reasonably protects the employer’s legitimate business interests. However, a court cannot rewrite the terms of a restraint and, in this case, had the restraint operated only by reference to Cotton On, it may have been enforceable.