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Employment Restraints

The Edge Pty Ltd* is a company engaged in cutting edge technology. The Human Resource Manager engaged two new employees.

The first employee, Stephen*, was employed as an integral part of the business developing the technology which gave the company the ‘cutting edge’.

The second, James*, was employed as a sales representative.

When Stephen was engaged, the Human Resource Manager recognised the potential risk to the company if Stephen moved to a competitor. Because of this, Stephen’s contract was drafted to include a restraint that, if enforceable, would prevent Stephen from working in the same field anywhere in the South Pacific for five years. Stephen took little notice of the contract as this was his dream job and he never thought he would leave.

Two years later, Stephen and the General Manager had a falling out. Stephen resigned. After Stephen left he sat down calmly and reviewed his employment contract. It was only then that he realised he was unable to work in area of expertise. He had a mortgage and family to support.

In contrast, when James was engaged, the Human Resource Manager used the company’s ‘standard’ employment agreement. The standard agreement only contained a confidentiality clause, however, it did not clearly set out what information was confidential.

James was head hunted to work for a competitor of The Edge. He took with him 20% of the The Edge’s customer base and his Personal Assistant. The Edge fears more customers will follow.

The Edge and Stephen suffered a time consuming and costly legal battle that was settled after months of negotiation by rewriting Stephen’s restraint to allow him to work.

The damage caused by James to The Edge could not be undone.

* denotes a fictional company, names and case study

The Lesson

A restraint should not prevent an employee from working after their employment ends, but should protect a business from an employee using sensitive information to the detriment of the business.

Restraints should be balanced and fair to ensure they can be enforced.

Employees no longer stay in the same job forever. Restraints should be given proper consideration by both employers and employees at the time of recruitment to avoid the pain, risks and costs that can follow after the employment relationship ends.

For further information, please contact the Workplace Law Team.