Restraint of trade clauses operate to protect an employer’s reasonable legitimate business interests. This interest, however, needs to be balanced against an individual’s ability to earn an income. If a restraint clause is considered to be too onerous then a Court is likely to render it, or part of it, void. This is particularly the case where a clause seeks to prevent an employee from working in their chosen profession.
There are a number of sources of protections on an employer’s business interests in, employment contracts. Commonly these seek to prohibit employees from:
- using their employer or former employer’s confidential information and trade secrets (confidentiality restraint);
- working for a competitor for a period of time after they leave their former employer (non-compete restraint); and/or
- soliciting or otherwise interfering with the relationship between the employer and its clients, suppliers, staff, customers or other important stakeholders (non-solicitation restraint).
In the recent case of Fortrend Securities Pty Ltd v Wollermann  FCA 70, the Federal Court granted an injunction on the basis that it considered, at first glance, that former employees had breached their non-solicitation and non-compete obligations.
Mr Wollermann and Mr Lyle (Former Employees) were advisors at a specialist broker, Fortrend Securities (Fortrend). They resigned from their employment with Fortrend and joined its competitor, Shaw and Partners (Shaw) shortly after. Subsequently, Fortrend received requests from its clients to transfer to a new broker.
On this basis, Fortrend commenced proceedings seeking interlocutory relief against Shaw, the Former Employees and the Former Employees’ company, LWAM Pty Ltd (LWAM).
Amongst other things, Fortrend alleged that:
- the Former Employees:
- downloaded confidential client and employee files onto USBs prior to resigning;
- provided some, if not all, of that confidential information to Shaw; and
- told Fortrend clients they were leaving to join Shaw, therefore, soliciting clients;
- Shaw used this information to solicit Fortrend clients; and
- LWAM and Shaw had entered into an agreement, while the Former Employees were in Fortrend’s employ, which provided for a generous commission to LWAM.
- the Former Employees:
In relation to the loss suffered thus far, Fortrend submitted that it had lost 43 clients to Shaw, worth an aggregate value of $28 million, and that its revenue had decreased to nearly a quarter of their pre-October 2022 income.
Fortrend’s application was opposed by the Former Employees, including on the basis that the information was not confidential given it was in the public domain and they were able to recall it from memory.
Despite this assertion, the Court held that Fortrend had made out a strong ‘prima facie’ case that the Former Employees had breached the confidentiality and non-solicitation obligations in their respective employment contracts. The Court held that these clauses were reasonable in the circumstances, and did no more than what was reasonable to protect Fortrend’s legitimate commercial interests.
The Court also found Shaw was a party to these breaches, in light of its dealings with LWAM.
Further, the Court held that if injunctive relief was not granted, Fortrend faced a significant threat of losing a substantial number of its clients.
On this basis, the Court temporarily restrained:
- Shaw, the Former Employees and LWAM from using Fortrend’s information to contact and provide trading services to any Fortrend client; and
- Each of the Former Employees from offering any trading services to Fortrend clients.
This matter is ongoing as the Former Employees and LWAM continue to oppose the enforceability of the restraints. It will head to final trial in 2024.
What next for employers?
In many professions, restraint of trade clauses are extremely important to protect the business’ legitimate commercial interests.
In order to ensure you are able to rely on and enforce them when needed, these clauses need to be carefully drafted.
HR Legal can assist you with:
- reviewing your employment agreements and drafting appropriate and enforceable restraints for all levels of staff (including for senior executives); and
- enforcing restraint of trade clauses and/or providing advice on your prospects in enforcing them.
Please contact us at email@example.com for any assistance.