The Federal Court of Australia has recently handed down a decision which illustrates that a restraint of trade clause must be reasonable in order to be relied on by an employer.
Summary of a recent Court case
The Applicant in this Federal Court case was a wholesale and retail fuel supply business, United Petroleum. The Respondent, Mr Justin Barrie, was a former employee who used to work at United Petroleum as their Wholesale State Manager. The case is United Petroleum Pty Ltd v Barrie [2022] FCA 818.
United Petroleum employed Mr Barrie pursuant to a written employment contract that included a term which prevented Mr Barrie from taking up certain types of work post end of the employment.
When Mr Barrie resigned from the United Petroleum business, he notified them that he was taking up a position at another company as a Sales Manager. His new employer operated within the aviation petroleum products sector.
United Petroleum sought to rely on the clause within the employment contract that restrained Mr Barrie’s post employment conduct (working for a competitor) and they commenced proceedings in Court seeking an injunction to stop him from that action.
United Petroleum claimed that the company wished to expand to the aviation market and that Mr Barrie had knowledge and know how of this as a result of working at United Petroleum. United Petroleum argued that Mr Barrie should be restrained from taking up the employment position with his new employer.
The Judge, after hearing the case, held that the clause within the employment contract that was being relied on by United Petroleum was too wide in its scope. The clause operated so as to restrict the former employee’s activities regardless of whether it would harm the United Petroleum business. The Judge held that the restraint of trade clause as it was drafted restricted Mr Barrie unreasonably from assuming alternate employment roles even in cases where United Petroleum had no legitimate commercial interest to protect.
United Petroleum ultimately lost the case, and Mr Barrie was allowed to continue working with his new employer.
What does this mean for employers?
Terms within an employment contract restraining an employee’s trade post employment must be reasonable between the parties and must protect a clearly defined legitimate business interest of the employer.
Courts will likely not enforce a term that is too wide in its application, or a term that does not protect an identifiable legitimate business interest of the employer.
It is crucial that terms in an employment contract are drafted carefully to ensure that they are not declared void or unenforceable by a Court if an employer seeks to litigate to enforce that clause if ever needed.
If you are an employer who has a question regarding restraint of trade terms in an employment contract, or if you seek advice regarding that, please contact Aaran Johnson or Simon Kumar (contact details below) to discuss how Marsdens can assist your business.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
