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Post-employment and Employee will have Contractual and Non-Contractual Duties to their Former Employer

Post-employment an employee will have contractual and non-contractual duties to their former employer.  These include equitable duties not to use your former employer’s confidential information and statutory duties not to use the employer’s material to its detriment. The common law and equitable duties of employees are invariably supported, and enhanced, by the terms of a written contract of employment.

The more senior an employee or the greater the damages a departing employee can do to a business the more important it is to ensure there is a written contract of employment restricting the employee’s post-employment conduct.

An effective and enforceable restraint clause will only seek to protect the trade secret, client list or client relationships for no longer than, and no further than, is reasonably required to protect the employer’s interest.  It is also important to understand how different states will approach the validity of a restraint of trade. Some states will require you to consider cascading restraint clauses where in NSW the Restraint of Trade Act can assist employers (by reading down an unenforceable clause).

When seeking to enforce a restraint employers need to consider whether they require the protection of an injunction or simply seeks compensation for the damage suffered by a departing employee.  Given a departing employee can quickly decimate a business employers should move with haste to protect their interests, otherwise the Courts might not assist the tardy.

FAQs

Are all restraint of trade clauses enforceable?

No. Not all restraints are enforceable. The employer must have a legitimate interest to be protected.  The law will only provide the employer sufficient time/distance to protect the employer’s legitimate interest after the employee leaves.  It is not a restraint against mere competition.

In states outside NSW it is very important to draft the restraint time and restraint distance carefully otherwise the Court can hold that the restraint is unreasonable as to time or distance.

Can my former employer stop me working?

A restraint will only protect a legitimate interest. If you were the face of the employer and they have an interest to be protected then an employee could be restrained from establishing or being employed by a competing business.  Invariable we find that former employees will be restrained from approaching particular clients and not from working for a competitor.

What orders can a Court make against a former employee?

A Court has power to issue an interim injunction and/or damages for breach of a restraint.  The damages can be for the loss suffered by the employer or an order for the employee to account for profits.  Either way the employer must prove their loss.

How does the Court decide if an interim injunction should be granted?

A Court will only grant an interim injunction if the employer has an arguable case and damage would not be an adequate remedy to protect the employer’s interest.  In doing so the Court must also undertake a balancing exercise to determine who should suffer the detriment. This is, should the employee be restrained from working or the employer face the prospect of their business being damaged irretrievably. Where an injunction is granted the employer will have to give an undertaking as to damages. This is, if the restraint is not upheld then it will have to pay the employee their losses.

Who is liable for the costs of such application?

The cost regime in the state and federal courts is that the successful parties cost will be paid by the other party.  However, it is common for the parties to resolve the matter at the interim injunction stage with each party to pay their own costs.

At Burke Mangan Lawyers we bring many years of experience in advising or representing employers and employees in the recruitment, IT, finance and banking, health care and real estate industries, as well as it other industries. We provide employers and employees with an understanding of the terms of, and enforceability of the restraints. We protect the interest of employers and employees in Court proceedings and engage strategies to best protect our client’s interest.   We have a proven track record to obtain you the right outcome.

Connect with us today and take the first step towards your peace of mind.

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