In brief - The answer may depend on when and how well you have drafted your restraint of trade clause in the employment contract
Employers frequently ask us if they can prevent an employee from working for a competitor after the employee resigns. While it depends on the facts of each individual case, a carefully considered and drafted restraint of trade clause in a contract of employment may achieve this outcome. Unfortunately, most clauses we see are invalid and unenforceable because legal advice has not been obtained on this technical area of law at the time of entering into the contract.
Wallis Nominees v Pickett case example
The well-known Victorian decision of Wallis Nominees (Computing) Pty Ltd v Matthew William Pickett  VSC 82 demonstrates the limits of restraint of trade clauses and the consequences of poorly drafted clauses. In that case, the employee (Pickett) was employed by the employer (Wallis Nominees) as an IT specialist. Pickett had a contract of employment restraining him from providing certain services to clients of Wallis Nominees within 12 months after ceasing employment with Wallis Nominees.
During his employment Pickett was offered and accepted an IT job with a client of Wallis Nominees for whom Pickett had been providing certain IT services on behalf of Wallis Nominees. When Pickett resigned to take up the job Wallis Nominees brought legal action in the Supreme Court of Victoria. Wallis Nominees alleged that Pickett had breached the restraint of trade clause in his contract of employment by accepting a job with a client performing similar IT services to those performed at Wallis Nominees.
Restraint of trade clause found to be unenforceable as it was invalid and unreasonable
The starting point for a restraint of trade clause is that it is void as against public policy unless the employer can prove a legitimate business interest deserving of special protection. The Supreme Court of Victoria held that Wallis Nominees could not enforce the restraint of trade clause against the employee in this case because it was invalid and unreasonable for the following reasons:
- Firstly, Pickett was not considered by the judge to be at risk of exploiting the customer connections of Wallis Nominees because he was not the “human face” of that business and did not have the relevant control over the business of the client to enable such exploitation. The skills and experience Pickett had gained while working for Wallis Nominees did not constitute a legitimate business interest that Wallis Nominees could protect by the restraint.
- Secondly, the length of the restraint clause (12 months) was too long because it was longer than Wallis Nominees needed to find an effective replacement for Pickett. As such, the clause was unreasonable.
Take away tips
Restraint of trade clauses need to be considered at the start of employment, not the end. Employers wishing to rely on enforceable restraint of trade clauses in contracts of employment should seek legal advice.
This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.