Federal Court upholds six-month restraint

The Federal Court of Australia has reinforced the enforceability of post-employment restraints in employment agreements, awarding a six-month restraint to an employer whose former employee violated their non-solicitation and non-compete clauses.

This verdict underscores the critical importance of well drafted post-employment restraints in safeguarding a business’s proprietary information and competitive edge.

Background

The applicant, Broadband Solutions Pty Ltd (Broadband), is a prominent internet service provider specialising in IP network management and tailored voice and data services in Australia. In an application for interlocutory relief, Broadband alleged that its former IT software engineer, Mr. Andres Julian Hernandez Ramirez, had breached several clauses in his employment agreement. These clauses pertained to the protection of confidential information, intellectual property, and employment restraints.

Broadband contended that Mr. Ramirez had accessed sensitive documents post-resignation, contravening Section 183 of the Corporations Act 2001 (Cth) in addition to his post-employment restraints. The applicant argued that this conduct ultimately resulted in Broadband losing one of their key clients, RT Edgar, to Mr. Ramirez’s new employer, Unified IT.

Evidence

The evidence presented demonstrated that Mr. Ramirez accessed documents related to RT Edgar from his home computer after his resignation was effective. The activity log indicated access to 11 documents, five of which were RT Edgar-specific and six that were more broadly relevant. Approximately six weeks later, RT Edgar emailed Broadband advising that it was withdrawing its IT services. Unified IT was copied on this email to Broadband.

The court identified that this breached various clauses of his employment agreement, which explicitly prohibited unauthorised use, copying, or possession of Broadband’s confidential information and intellectual property. In addition to this breach, the court held that this breached Mr. Ramirez non-solicitation and non-compete clause as the evidence indicated that Mr. Ramirez accessed the documents to facilitate his ability to provide similar services at Unified IT and solicit work from RT Edgar.

Court’s Decision

The court was ultimately satisfied that, so far as balance of convenience is concerned, Mr. Ramirez breached his
post-employment restraints. Mr. Ramirez was ordered to cease working for Unified IT or any other competing organisation in the relevant geographical area (a radius of 60 kilometres from his primary work location at Broadband) for a period of six months.

Best practices for Employers

This decision serves as a reminder to employers on the importance of well-drafted post-employment restraints. Well-drafted
post-employment restraints are crucial for protecting a business’s confidential information and client relationships, thereby maintaining competitive advantage and mitigating risks associated with employee turnover and poaching.

To increase the likelihood of a restraint being enforceable, it is essential that the clause itself is well drafted and that proactive steps are taken when an employee gives notice of their resignation or when their employment is being terminated. It is important to tailor the clause to the specific employee. Employers should turn their mind to what is reasonable in the circumstances given the employee’s role within the organisation and the types of information and clients to which they may have access.

We strongly recommend that employers seek legal advice in the restraint drafting process. This also includes seeking legal advice when updating restraints as employees are promoted.

The Workplace Advisory and Disputes team at Gadens regularly provides advice about employment contracts and
post-employment restraints and is able to assist you with any queries.

To see how Gadens may be able to assist, please contact our team of Employment Advisory specialists.

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Authored by:

George Haros, Partner
Zoe Firmin, Lawyer