Restraint of trade clauses are often poorly drafted and frequently misunderstood. A significant proportion of restraint clauses would be unenforceable if tested.
A restraint of trade clause is void by default unless the employer can demonstrate that it is reasonable to protect the legitimate business interests of the employer. The court will consider whether the restraint is such only as to afford a fair protection to the interests of the employer, and not so large as to interfere with the interests of the public.
Despite the difficulties inherent with producing an enforceable restraint of trade clause, employment contracts will often contain generic clauses that have no specific bearing to the particular employee in question and are often far too wide. The fact that the restraint clause is void usually only becomes apparent when an employee is breaching it, whereupon the employer is told by its lawyer (or sometimes, by the court) that the clause isn’t worth the paper it’s written on.
The recent case of Sportsbet Pty Ltd v Carpanini and Beteasy Pty Ltd, handed down on 31 March 2014, is illustrative of the difficulties that are often encountered when trying to enforce a restraint clause.
Sportsbet and Beteasy are online bookmakers, in competition with one another. Ms Carpanini was employed by Sportsbet from 2009 until 30 March 2014 as a customer service manager. She was scheduled to commence work on 1 April 2014 with Beteasy, also in a customer service role.
Sportsbet sought an urgent interlocutory injunction to restrain Ms Carpanini from commencing work with Beteasy. This was not the final hearing – this hearing was to determine whether Ms Carpanini was allowed to work at Beteasy while the substantive case was making its way to trial (which might take months or years). The Judge needed to decide whether there was a “serious issue to be tried” and, if there was, whether the balance of convenience favoured the making of the orders sought.
The clause restrained Ms Carpanini from being involved “in any capacity and at any time” within 6 months of termination from Sportsbet with any competing business within Australia. There was no dispute that, if the restraint clause was enforceable, Ms Carpanini was going to breach it. She argued however that it was void, saying that the restraint was too broad and too long, and that Sportsbet had no legitimate interest that required such a significant restraint.
Sportsbet argued that Ms Carpanini was in possession of confidential information which, if used as part of her employment with Beteasy, may cause damage to Sportsbet. In this respect, Sportsbet pointed to things such as strategies surrounding upcoming events but was unable to identify any specific detriment that was likely to be suffered.
The Judge found it was strongly arguable that the restraint clause was too wide to be enforceable. It would have restrained Ms Carpanini from taking any job whatsoever in a competing business, for 6 months, in the whole of Australia. The Judge did not accept that Ms Carpinini’s position was so high within the organisation, or that she was in possession of such sensitive and important confidential information, that such a restrictive clause was required.
Consequently, the Judge was not even persuaded that there was a serious question to be tried and the application for an interlocutory injunction was therefore dismissed – Ms Carpanini was allowed to start work with Beteasy. This does not necessarily mean that, if and when the matter makes it to a full hearing, the restraint clause will be struck out, but it certainly does not bode well.
This case should serve as a reminder that restraint of trade clauses can be extremely valuable in protecting the interests of an employer, but only if drafted properly. It is simply not good enough to rely on generic clauses – in all likelihood, they will be struck out. Employers should consider with respect to each employee whether a restraint of trade clause is appropriate and, if so, seek legal advice on how to improve the chances of the clause being effective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.