Restraint of Trade: Protecting your business from ex-employees

A tale of victory for the employer! Case note: APT Technology Pty Ltd v Aladesay [2014] FCA 966

What's the issue?

The Federal Court has delivered a significant win for employers by granting a temporary non-solicitation restraint to prevent a former employee from competing against his former employer even though the employment contract did not contain any post-employment restraints!

What happened?

The employee worked for APT Technology (APT Technology Pty Ltd v Aladesay [2014] FCA 966), an engineering consultancy company. During his employment, the employer discovered that the employee had set up a competing business and was stealing information, such as the identity of clients, databases, reports and information about the employer's equipment, software and charges.

The employee's conduct amounted to a breach of several obligations in his employment contract but the contract did not include any clauses to prevent him from dealing with the employer's clients after his employment ended.

To protect its interests, the employer applied to the Federal Court for an urgent injunction restraining the employee from dealing with the employer's clients and from misusing confidential information, as well as damages arising from the employee's breach of his employment contract.

At an interim stage in the case, the Court decided that the risk to the employer was so great that it justified making an interim order that the employee be restrained from soliciting the employer's clients, even though the contract contained no such restraint.

The restraint only applied until the final hearing of the Court case, which is still to be resolved at the time of writing, but it is an unusual and welcome development for employers.

That's great, but avoid Court if you can!

Even though the employer was successful in this instance, it helped that the employee's conduct was so serious in nature as to cause real economic harm to the employer's business. It may be difficult to obtain such a restraint in other circumstances.

The safest course for employers is to ensure that their employee contracts contain a restraint-of-trade clause, with such restraints being fair, reasonable and legally enforceable. A well-drafted contract can protect an employer in a way that is much more efficient and cost-effective than Court proceedings!

If you need any advice on how to best protect your business against unreasonable competition from former employees, please feel free to contact Mitchell Zadow, Managing Principal and Accredited Specialist in Commercial Law or Samuel Ellemor, Employment Law expert.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

For further information contact  
Mitchell Zadow

Mitchell is the Managing Principal of our law practice.

He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.

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