Restraints of trade in employment

The Victorian Supreme Court has upheld a 4 year restraint of trade which was entered into as part of a sale by the former employee, an IT specialist, of a shareholding in the company.

Clause 14.1(a) of the Agreement contained the restraint clause in issue. It provided:

“During the Restraint Period, each Restricted Person must not, within the Restricted Area directly or indirectly, either on their own account or as an employee, member, shareholder, unitholder, director, consultant, adviser, contractor, principal, agent, manager, beneficiary, partner, associate, trustee, nominee, custodian, financier, representative, salesperson or in any other capacity whatsoever for any other person, firm, association or corporation (except as is expressly permitted by this agreement):

(a) Carry on, engage in or have any involvement in the Restricted Business.”

Justice McDonald held that

In doing so, His Honour acknowledged that the common law is more likely to uphold a restraint of trade with commercial implications (in this case the sale of shares) than in a simple employer and employee relationship.

“Finally, I accept the plaintiffs’ submission that whilst the consideration of the reasonableness of a restraint turns upon the facts of a particular case, there is nothing exceptional in a four year restraint in the context of a goodwill case where the vendor receives a substantial amount of consideration.[45] In Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd,[46] a ten year restraint was upheld. In C & S Constructions Pty Ltd v Dawson,[47] a five year restraint was upheld. In Pioneer Concrete Services Ltd v Galli,[48] a five year restraint was upheld. In Bridge v Deacons,[49] a five year restraint was upheld.”

Southern Cross Computer Systems Pty Ltd v Palmer (No 2) [2017] VSC 460 delivered 14 August 2017