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Update: Restraint of Trade & Confidentiality Clauses

Business man slamming desk

Whether you’re an Employer or Employee, before you enter into an employment relationship you need to understand restraint of trade and confidentiality clauses.

Time and time again Employers offer employment under the misapprehension that their business is adequately protected – when it’s not. Similarly, time and time again Employees sign contracts of employment containing restraint of trade and confidentiality clauses without adequately understanding what they mean or how they can come back to bite them when the employment relationship ends.

The lesson to be learned for both Employers and Employees is that it is in your best interests to be proactive and seek legal advice on these issues before it’s too late.

Confidentiality

In a recent case, Actrol Parts Pty Ltd v Coppi (No 3) [2015] VSC 758, Justice Bell ordered that the Employer (Actrol Parts Pty Ltd) pay the Employee (Mr. Copper’s) an estimated $300,000 in litigation costs on an indemnity basis because it could not prove that the Employee had actually caused any loss or damage by sending several confidential and commercially sensitive documents to his private email prior to resigning.

In essence, the Employer had been too quick to jump into litigation as a means to try and protect its business interests and it was an act that came at enormous expense. In addition to the approximate $300,000 costs order, the Employer also suffered $600,000 of its own costs.

This case highlights the importance of ensuring you understand what is required to prove a confidentiality clause has been breached, and that you obtain legal advice about your options before proceeding to litigation.

Restraint of Trade

In another recent case, Entello Pty Ltd v Firooztash [2016] QDC 50, an ex-employee (Mr. Firooztash) has successfully been restrained for 6 months from using any information or contracting, marketing, soliciting or undertaking any professional services for clients of the Employer (Entello Pty Ltd) pending final determination of the issues by the Court.

The Employee had signed a contract of employment which contained confidentiality and restraint of trade clauses. Those clauses prohibited him from soliciting or undertaking professional services for any clients he had dealt with during his employment. Despite this, the Employee subsequently commenced work for a competitor. Not long after, the Employer lost almost half of the clients the Employee had serviced on their behalf – coincidence?

The Employer filed an application seeking an interlocutory injunction and the Court agreed that it was reasonable to infer that the Employee was undertaking services for clients of the Employer in breach of his employment contract and should be restrained from any further such conduct.

This case is a testament to the importance of Employers having valid and enforceable restraint of trade clauses in their employment contracts to protect their business. If the restraint is not enforceable, your business will be at risk.

Lessons to be learned

It is better to be safe than sorry. If you are an Employer wishing to adequately protect your business, you need to ensure you obtain proper legal advice to make it a reality. If you are an Employee, before you agree to an employment contract you need to obtain advice to ensure you understand what limitations you are potentially agreeing to and how these can stay with you even after your employment ends. Being proactive in these matters is of paramount importance.

To know your rights, contact our Employment Lawyers today.

Nikolina Palasrinne
Senior Associate