Recent case where court refused to enforce restraint clause
Nicole Peck was employed as the Chief Financial Officer of Just Group Limited (JGL). Ms Peck resigned after only four months to work for the Cotton On Group as the General Manager, Finance and Treasury.
Ms Peck’s contract included a post-employment restraint clause. It obliged her to not:
- carry on any activity which was the ‘same as, or similar to, any part of the speciality brand and fashion business’ of JGL; and
- carry on any activity for any of the 50 entities listed in a schedule (including Cotton On).
Those restrictions applied for a series of cascading geographic areas and periods. At its maximum, the restrictions applied in Australia and New Zealand for 24 months, and at their minimum they applied in Victoria for 12 months.
The court refused to enforce any of the restraint clause, deciding that it was both too broad and too long to protect the Just Group’s legitimate business interests.
The court decided that the restriction on Ms Peck doing anything the ‘same as, or similar to, any part of the speciality brand and fashion business’ of JGL was unreasonable, since it would prevent Ms Peck from working in roles where JGL’s confidential information is irrelevant.
The court also refused to enforce the second restriction, which specified the 50 entities that Ms Peck was restricted from working for. The court said that JGL needed to prove that each of those companies actually competed with it. Since JGL led evidence in relation to four of those entities only, it failed to prove that the restraint was reasonable.
Ms Peck was still in her six month probation period when she resigned, during which time she or JGL could terminate the employment on one month’s notice. The court said that there was a disparity between, on the one hand, JGL’s ability to terminate Ms Peck on one month’s notice, and, on the other, being able to impose a 12 month restraint. The court acknowledged that Ms Peck’s restraint had been the subject of negotiation and contained an express acknowledgment that it was reasonable. However, this did not automatically mean that the clause would be enforceable. Since even the minimum restraint was too long, the court decided that it could not be enforced against Ms Peck.
HOW DOES IT AFFECT YOU?
- Post-employment restraint clauses will only be enforced if they are limited to protecting the employer’s legitimate business interests (eg their customer connections and confidential information).
- Legislation in New South Wales allows the courts there to enforce restraints to the extent that they provide that protection, even if they are drafted more broadly.
- In the other states, employers rely on ‘cascading’ restraint areas and restraint periods to try to achieve a similar result.