Restraint of trade clauses continue to be a difficult contractual clause to get right, and it pays for HR professionals to apply due diligence in negotiating the fine print.
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The contractor running Australia’s immigration detention centres has lost a bid for an injunction which would have stopped an ex-employee going to work for a rival company.
The managing director of Serco, Christopher Manning, left the company in May of this year and was hired shortly after by rival company G4S – he was subsequently instrumental in his new company’s bid to run the Manus Island detention centre in Papua New Guinea.
Upon learning of Manning’s new appointment, Serco took legal action against him in the ACT Supreme Court, and claimed he breached a contract banning him from working for a rival in Australia for a year. Manning’s position was that he had honoured the terms of the employment agreement. Serco submitted that because of Manning’s former role with the company, he had intimate knowledge of its commercial operations and therefore, by working for a rival, had the capacity to damage Serco’s commercial interests.
Ultimately the court found that there was no evidence G4S had enticed Manning away from the Serco, or that G4S had any intention of utilising the Manning’s knowledge to beneficially enhance its relationship with the Department of Immigration and Citizenship. In addition, the court ordered Serco to pay Manning's legal costs.
The decision represents a timely reminder for organisations to stringently examine remuneration and departure clauses for high level executives and management positions. According to leading workplace law firm, People + Culture Strategies (PCS), it’s up to employers to apply due diligence in tailoring the remuneration and departure clauses of employment contracts, or face potential difficulties if the relationship goes south.
In negotiating a contract, the departure clause should be afforded the same consideration as the remuneration package being offered – countless organisations have fallen prey to an ill-conceived exit strategy, and have paid the price in costly legal battles. Kathryn Dent of PCS said restraint of trade clauses are commonly held to be void if they are not reasonably necessary for the protection of the employer’s legitimate business interests. “Any post-employment restriction [must] be reasonable in terms of prohibited activity, length of time and geography,” Dent said earlier this year.
Dent also warned employers of the due diligence required when negotiating remuneration benefits such as share options and bonus-schemes, which can sometimes end in significant inconvenience upon the executive’s departure. “Executives are often recruited to a role on the basis of remuneration and many employers fail to clearly draft how these arrangements operate not only during employment, but also upon termination,” she added.
