Restrictions on employment

In Australia, the common law doctrine of restraint of trade applies to restrictions on employment.

The doctrine requires that for any such restriction to be legally enforceable, it should be reasonable for the parties and for the general public. A legitimate interest should be at stake, and the restraint should be limited to protecting that particular interest (Australian Competition Law, 2014).

Consequently, restraints of trade are usually an exception to the judicial policy of free trade. However, legitimate business interests of employers are protected.

In determining what is legitimate in protecting confidential information it must meet certain criteria.

In Corrs Pavey Whiting &Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 443 Cummow J said:

“the plaintiff (i) must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question: and must be able to show that (ii) the information has the necessary quality of confidentiality (i.e not common knowledge) ; (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence; and (iv) there is actual or threatened misuse of that information.”

In this situation client lists qualify as a type of confidential information that is classified as the employer’s property, which is protected by common law.

The employment contract in modern Australia which involves the commercial relationship between an employer and employee, is the modern equivalent of the Masters and Servants Act 1842 (UK).

A servant must work in the interests of their Master (employer) and has a duty of care to not put the master at disrepute or harm the interests of their master. (Price & Neilsen, 2012) While the employee is in service of employment to their employer, they must honour the implied duty of fidelity, which is to not use confidential information to make secret profits, not defame the company’s reputation, or to work against the interests of their employer, such as giving confidential information to competitors, which can affect the employer’s competitive position and profits. (Price & Neilsen, 2012).

The case of Lindner v Murdock’s Garage [1950] HCA 48 introduced the notion that contractually, employers can ask for their employees to be restrained from working in the profession with the same interests for a time period after their employment is terminated.

In this case, the former employer had a clause in their contract to not conduct a similar business in the same area for a period of one year after termination.

Subsequently, the court found the clause in the contract unenforceable as they thought it went beyond what was reasonable protection of the business. The clause in the employment contract therefore must be reasonable to be enforceable.

This implied term also extends to post employment situations, where confidential information is not to be used to the purpose of gaining economic benefit in either self-employment or in employment to a competitor. (Price et al. 2012). This is because when the person in question signed their name in employment to the employer, they then have a duty of fidelity to their employer, even if it is not mentioned in policy, or even if the person had not read the policy before signing the contract. This means the employee must not disclose or use confidential information, not make secret profits or steal from the employer.

This is partly because the employer is the one who puts the employee in contact with the customer. The brand or reputation of the employer is also an influencing factor in the employee’s relationship with the customers. On the other hand, the employees own skills and personal knowledge (e.g. talent, creativity and intuition) are difficult to restrain. For example, the influence that an employee is able to exert over the customers could be a personal talent, e.g. relation building skills. This ‘asset’ cannot be attributed to the employer. It is not so easy to demarcate the two types of knowledge because they are interlinked, and they influence the learnings by the employee (Arup, 2012).

However, employees can be restrained from soliciting those specific clients with whom they have worked while being part of the organisation e.g. Stacks/Taree Pty Ltd v Marshall [No 2] [2010] NSWSC 77. This is perhaps because employee’s insights about such customers can be more easily attributed to the employer. Again, exceptions may be in order if the customers have been acquired by the employee due to his personal contacts. However, if the employee is actually known to use any particular information gained in an employment after he leaves the organisation, the employer’s claims for restraint or damages gain strength.

Viewed from another perspective, restraint may not be applicable if a customer follows an employee and initiates contact with him on his own volition (Arup, 2012).

Furthermore, the usefulness or novelty of the information, and the difficulty in its acquisition or replication is an important factor in determining the duration of the restraint.

Duration of restraint can be determined by how long it takes for that information to lose its currency. In this case the address book could be used to update address changes of the clients, which means the currency of information would unlikely lose little or no value over a long period of time. (Arup, 2012)

Also this is explicit, tangible information which can be transferred to new employees replacing old employees, not intangible information recalled by the former employee, which could be lost to memory over time.

However some knowledge is not considered explicit but is relationship based knowledge, which is made known through intimacy with clients.

Firm or industry specific characteristics are important and need to be factored in determining duration of injunction, if a duration is determined. (Arup, 2012).

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