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The HR Cartel

Yes; post-termination restraints in employment contracts still matter

May 28, 2024

Post-termination restraints in employment contracts still matter.

Author: Tim Dive, Director – May, 2024.

We regularly have this discussion with our clients, when we’re drafting their employment contracts, and their question…

“Are these restraints ever worth it, anyway?”

Yes.

This is the first successful case I’ve seen for a little while, but what a significant statement in support of employers, this is. Particularly given the recent comments from previous Fair Work Commission President, Justice Iain Ross, when he declared that employers should have to pay ex-employees for the duration of their restraint period.

This perspective is likely to be one of the next political footballs thrown at our faces by Unions, with Justice Ross’ remarks and the United States’ decision to remove post termination restraints surely spurring on the discussion.

But here we have a case where reasonableness has won. An organisation that stands a genuine possibility to lose market share on a national level, for no other reason than an employee deciding to take a new job.

This organisation has other employees that may be impacted by such market share loss (risk). It is in the national public interest to uphold these restraints in matters such as these.

In the case of Samsung Electronics Australia Pty Ltd v. Grenville.

The court addressed Samsung’s request to enforce a restraint of trade clause against Mr. Grenville, an ex-employee. Mr. Grenville intended to start working for Electrolux Home Products Pty Ltd, a direct competitor, shortly after his resignation from Samsung.

Samsung then sought an interlocutory injunction to prevent this move, citing the post-employment restraint in Grenville’s contract.

Key Points of the Judgement:

  1. Interlocutory Injunction Granted: The court granted Samsung an interlocutory injunction restraining Mr. Grenville from commencing employment with Electrolux until 9 August 2024. This injunction was granted to protect Samsung’s legitimate business interests, particularly its confidential information and customer connections.
  2. Reasoning and Legal Framework:
    • The court assessed whether there was a serious question to be tried, whether damages would be an adequate remedy, and if the balance of convenience favoured granting the injunction.
    • It was determined that there was a serious question to be tried regarding the validity of the contractual restraint, which prohibits Grenville from working for a competitor in roles similar to those he held at Samsung.
    • The court found that damages would not be an adequate remedy, given the potential misuse of confidential information and harm to Samsung’s customer relationships.
  3. Legitimate Business Interests:
    • Confidential Information: The court acknowledged that Mr. Grenville had access to recent and significant confidential information during his tenure at Samsung, which justified the need for a temporary restraint.
    • Customer Connection: The court recognized Mr. Grenville’s strong relationship with key clients like The Good Guys and JB HiFi, posing a risk of these customers following him to Electrolux, thus harming Samsung’s business interests.
  4. Balance of Convenience:
    • The balance of convenience favoured Samsung, particularly as it provided an undertaking to continue paying Mr. Grenville’s base salary during the injunction period.
    • The court also considered that Mr. Grenville knowingly accepted a position with a direct competitor despite the contractual restraints, making him the author of his own predicament.
  5. Terms of the Injunction:
    • Mr. Grenville was restrained from employment with any competitor involved in similar business activities to Samsung in Australia.
    • The injunction included prohibitions on soliciting Samsung’s clients or employees and from engaging in any activities that might harm Samsung’s business interests.

Importance for Employers:

This judgement highlights the importance of having clear and reasonable restraint of trade clauses in employment contracts to protect business interests such as confidential information and customer relationships.

Employers in Australia must ensure these clauses are well-drafted and reasonable in scope and duration to be enforceable, providing a legal basis to prevent former employees from potentially harming the business when joining competitors.

When our clients ask, “are these clauses even worth it?”… we always err on the side of caution, and particularly around those positions with privileged, direct and regular access to customers, customer databases, pricing structures, secret processes and innovations, and especially those who drive revenue through the door.

Thank you for reading! If you have any questions or need further assistance, our team is here to help. Don’t hesitate to call us on 1300 138 211 or visit our contact page to get in touch. We’re looking forward to connecting with you!

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