There appears to be confusion between employers and employees alike about the effect of restraint clauses in an Employment Agreement.
The question is always whether these clauses are enforceable and flowing from that, what about the employees’ right to earn a living.
Restraint of trade clauses are deemed to be void because they are contrary to public policy. However courts have in the past and will in the future no doubt, enforce restraint clauses if the clauses are properly drafted and are reasonable to protect a legitimate interest of the employer.
In the recent case of OAMPS Insurance Brokers V Hanna a post Employment Restraint Deed contains cascading clauses of restraint. These clauses make provisions for different areas and different periods which may apply after termination of the Employment Agreement. The idea is that if the first area and period are found to be unreasonable, the next will apply and so forth.
Mr Hanna was approached by a competitor of OAMPS and subsequently resigned his employment and started working with the competitor. OAMPS then applied for an injunction to prevent Mr Hanna from serving certain clients based on the restraint of trade clauses in the Deed.
Mr Hanna argued that the clauses were void because they were inconsistent with each other.
The Court found that a restraint of trade clause will be valid and certain if:
- It is expressed in clear words;
- It is capable of simultaneous compliance;
- Does not require any finding by the Court to make it operative.
The Deed between OAMPS and Hanna was found not to be void due to uncertainty.
Even though Case Law on restraint clauses is inconsistent, it is clear the Courts will enforce the clauses if they comply with the criteria referred to above and is also not unreasonable.
Employers should be very careful in drafting restraint of trade clauses and it is strongly recommended that employers obtain proper legal advice in the drafting of not only Employment Agreements but specifically the restraint of trade clauses in the Agreement.
Attwood Marshall Lawyers provide long term strategic advice and solutions in the following areas of employment law:
- Confidentiality & Restraints of Trade
- Restructuring & Redundancies
- Workplace Agreements
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