Post-employment restraints: a refresher

Post-employment restraints are clauses in an employment agreement intended to prevent former employees from engaging in a range of competitive activities after their employment ends. This includes working with competitors, and soliciting customers, suppliers, and employees of the employer to leave. By George Haros, Partner at Gadens and Diana Diaz, Special Counsel at Gadens.

Historically, Courts have often construed restraints narrowly. The two key competing interests that must be weighed up by a court are:

an employer's interests in protecting its legitimate business interests; and

an employee's right to be able to use their skills and experience to earn a living.

The following cases highlights how post-employment restraints operate.

McMurchy v Employsure Pty Ltd; Kumaran v Employsure Pty Ltd [2022] NSWCA 201

In these joint cases, two employees (McMurchy and Kumaran) moved to a competing company that sold a similar software product. The Court of Appeal found that a nine-month restraint period was reasonable for McMurchy, but not Kumaran. Given McMurchy's seniority and knowledge in the company, Employsure had a 'legitimate protectable interest' in its 'highly confidential' materials.

Conversely, Kumaran had a low-level position in the company.

This shows that an employee's seniority (and therefore their level of access to confidential materials and intellectual property) can affect the level of risk to an employer's business.

Getting ahead – good drafting

We strongly recommend that employers seek legal advice in the restraint drafting process. This also includes seeking legal advice when updating restraints as employees are promoted. It is all too common that a clause that was originally drafted by a lawyer has been rendered ineffective through later amendments made without consulting a lawyer.

Restraints and the offboarding process

Employers should remind exiting employees of their post-employment obligations, including any restraints, as part of the off-boarding process.

The Workplace Advisory and Disputes team at Gadens have prepared a comprehensive employee off-boarding checklist. Please contact a member of our team for further information.

Restraints and the recruitment and on-boarding process

If there are concerns that a potential employee may be subject to a restraint that prevents them from working with you, legal advice should be sought regarding the enforceability of the restraint.

The Workplace Advisory and Disputes team at Gadens regularly provides advice about employment contracts and postemployment restraints and is able to assist you with any queries.