Understanding Post-Employment Restraints: Insights from Monarch Advisory Group Pty Ltd v Puxty

Cases where employers are successful in enforcing post-employment restraints against former employees are typically rare. It is even rarer for an employer to be awarded damages against a former employee for such breaches.

The Federal Court (the Court) has recently delivered a long-awaited decision on damages for breaches of post-employment restraints. In Monarch Advisory Group Pty Ltd v Puxty (No 4) [2025] FCA 534, the applicant, a financial services firm, was awarded $270,593.60 for lost profits and the lost opportunity to sell the business at a higher price, with interest and costs to be determined separately. The judgment offers insights into when post-employment restraints are enforceable, and the types of damages employers may recover.

Common Law Principles

Generally speaking, at common law a restraint of trade clause is considered void for being contrary to the public interest, unless it is reasonable in the circumstances. The onus of proving its reasonableness falls on the party seeking to enforce the clause.

To be reasonable, the restraint must provide no more than adequate protection to the party imposing it. An employer cannot restrain an individual from engaging in mere competition. The protected knowledge must go beyond general skills and competence in the trade. It must involve either special influence over customers or trade secrets that would give the individual an unfair advantage if used competitively.

While considerable weight is given to the express terms of the restraint in the contract, they are not determinative. The validity of the restraint is assessed at the time the contract is entered into, not at the time of its breach.

Restraints of Trade Act 1976 (NSW)

In NSW, the operation of the Restraints of Trade Act 1976 (NSW) (the Act) modifies the common law principles, and a restraint of trade clause is not prima facie void. Under section 4 of the Act, a restraint is valid to the extent that it is not against public policy, even if the clause is not drafted in severable terms.

The Act permits the Court to ‘read down’ a restraint clause so that it operates only to the extent necessary to restrain the actual conduct of the respondent. However, the Court cannot redraft a restraint clause – it may only give effect to the clause if it is capable of being construed in a valid form.

Monarch Advisory Group Pty Ltd v Puxty (No 4) [2025] FCA 534

In this particular case, the applicant (Monarch) operated a financial services business specialising in insurance advice, with a client base of white-collar professionals acquired primarily through referrals. In December 2018, it employed Mr Puxty and Mr Coggan (the Respondents) as financial planners.

Prior to Mr Puxty’s employment, there were extensive discussions regarding restraints in his previous employment contract and whether he could bring former clients to Monarch. It was ultimately agreed that those clients would be excluded from Mr Puxty’s performance and incentive program. Meanwhile, both Respondents’ employment agreements included a 12-month restraint clause to protect Monarch’s confidential information and clientele.

In November 2019, the Respondents informed Monarch of their intention to leave. By early 2020, Monarch discovered their involvement in a new business, Odyssey. After their departure, the Respondents continued using their Monarch email accounts to communicate with clients, resulting in some clients transferring to Odyssey.

Monarch commenced proceedings in August 2020, alleging breaches of the post-employment restraint clause. It claimed the Respondents:

1. Solicited and accepted work from Monarch’s clients, both personally and through Odyssey;
2. Used confidential information, including client lists; and
3. Encouraged one another to act in breach of the restraint clause.

In December 2020, Monarch entered into a business sale agreement for sale of its client book, which was later settled in 2021.

Three questions arose for the Court to determine:

1. Whether Monarch consented to Mr Puxty breaching the restraint clause in his employment agreement;
2. If not, whether the restraint clause is enforceable; and
3. If a breach occurred, what damages is Monarch entitled to recover.

The Court found that Monarch did not consent to Mr Puxty breaching the restraint clause; earlier discussions related only to his incentive program, not post-employment client retention. The Court then considered the validity of the restraint clause in light of the Act. It accepted that Monarch’s business relied heavily on client relationships and that a 12-month restraint was reasonable, given the annual renewal cycle of insurance policies. Accordingly, the restraint clause was found to be reasonable, valid, and enforceable.

The Court awarded Monarch damages for loss of profits and the lost opportunity to sell the business at a higher price. While largely accepting the expert evidence presented by a chartered accountant and adduced by Monarch, the Court reduced the damages to account for clients, such as ‘family and friends’ of the Respondents, who likely would have left regardless of any breach.

Learnings for Employers

Restraint of trade clauses play a vital role in protecting business interests. This case highlights the importance of drafting restraint clauses that are reasonable and tailored to protect legitimate interests, such as client relationships and confidential information.

Further, in light of the Federal Government’s indications that it would restrict the use of non-compete restraints for certain employees (see our previous article here), it is important that employers seek advice on the implementation and enforcement of restraints.

The Court’s acceptance of a 12-month restraint period as being reasonable in this case, aligning with the business cycle, demonstrates the need to link the scope and duration of restraints to commercial realities.

HR Legal works with employers to draft restraint clauses that are customised to your organisation to enhance enforceability. We can also review existing employment contracts to identify and minimise potential risks, and assist with post-employment litigation. If you require assistance in this area, please contact us.

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This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.