The recent New South Wales Court of Appeal decision of Hanna v OAMPS Insurance Brokers Ltd Ltd [2010] NSWCA 267 has confirmed cascading restraint of trade clauses in employment contracts can be validly enforced and are not contrary to public policy.
Facts
Mr Hanna was an experienced insurance broker who commenced employment with OAMPS in 1990. He resigned from OAMPS on 22 April 2010, having accepted an offer to work at another insurance broking firm.
Mr Hanna had about ten years’ experience in insurance broking before he commenced employment with OAMPS.
During his employment with OAMPS Mr Hanna signed a written employment contract, a schedule to which contained a post-employment restraint deed.
After Mr Hanna left OAMPS, a dispute arose between the parties concerning the enforcement of the restraint clause in the employment contract.. The restraint deed contained a cascading or step clause with 9 restraints, the widest period and area being 15 months in Australia, and the narrowest being 12 months which covered the metropolitan area of Sydney.
The relevant parts of the restraint clause in the employment contract were as follows:
“Restraint Period means, from the date of termination of your employment:
a) 15 months;
b) 13 months;
c) 12 months.
Restraint Area means:
a) Australia;
b) The State or Territory in which you are employed at the date of termination of your employment;
c) The metropolitan area of the capital city in which you are employed at the date of termination of your employment.
Each restraint contained in this Deed (resulting from any combination of the wording in ell 1 and 2) constitutes a separate and independent provision, severable from the other restraints. If a court of competent jurisdiction finally decides any such restraint to be unenforceable in whole or in part, the enforceability of the remainder of that restraint and any other restraint will not be affected.”
The Findings
The main findings of the Court of Appeal, which were unanimous, included the following:
1. The restraint clause in the employment contract was not void for uncertainty. It was clear that the various restraint periods and areas were part of separate and independent provisions, all capable of being understood and complied with without breaching any other. Neither their operation nor any principle of law concerned with certainty of contract required a mechanism or hierarchy of order of operation.
2. The restraint deed was not against public policy by reason of the multiple and several operation of the restraint deed’s cascading clause.
3. The restraint clause was not unreasonable. The reasonableness and validity of a restraint clause should be assessed at the time of entry into the employment contract.
4. There is no legally required test in assessing the reasonableness of the duration of the restraint period. The use of one test or another depends on the facts and the evaluation of the approach that is reasonable.
5. The 12 months restraint period was reasonable.
Important Lessons
Important lessons that can be learnt from this employment law decision include:
i. To preserve your employer rights and ensure that cascading restraint of trade clauses in employment contracts are not found to be void for uncertainty, you will need to include a clause similar to clause 4 of the restraint deed that was applicable in the current case. The Court’s reasoning on this issue was that:
- clause 4 made clear that the various periods and areas of the restraint were part of separate and independent provisions;
- there were 9 restraints and all were binding;
- taken as individual clauses, all restraints were capable of being understood by the use of clear words and all restraints were capable of being complied with without breaching any of the others.
ii. It is not necessary for a restraint clause in an employment contract to make provision or include a mechanism to determine which one or more of the several restraints applied and in what order, as long as each of the clauses is clearly expressed.
iii. In order to determine what is the reasonable level of protection necessary to protect the employer/client relationship, Courts look to the facts of each case and evaluate the approach that is reasonable. This rationale also applies to determining the period of the restraint in the employment contract. In this case, the period of 12 months was found to be reasonable because this period ensured OAMPS was able to undertake renewal of all the insurance policies of the relevant clients, without the competition of Mr Hanna in his new employment.
iv. Generally, the more senior and experienced the employee, the longer the restraint period in the employment contract will be.
More Information
To learn more about employer rights under employment law in relation to restraint clauses in employment contracts and their application, speak to an HR lawyer or workplace law expert for practical employment law advice.
Please call the leading employment lawyers in Sydney, the Matthews Folbigg Workplace Solutions team on 9635-7966 to speak with one of our employment lawyers about your employment law needs.
