Employment relatioships

Essentially, Victorian courts perform a balancing act between the competing interests of the employee to be able to continue to gain a living on the one hand and the employer's interests of being able to reasonably prevent the disclosure of confidential and secret trade-sensitive information to competitors when the employment relationship ceases.

The sorts of factors courts have taken into account are as follows. First, Victorian courts will look to see whether the restraint of trade is reasonable or is too restrictive. Any restraint which tries to prevent an employee from working not only in the particular business of the former employer but any other associated or ancillary business is likely to be struck down. Likewise, a restraint which seeks to prevent an employee from working for an excessively lengthy period (generally more than 12 months) is also highly likely to be struck down and declared unenforceable. To overcome these problems, lawyers draft restraint of trade clauses to have a "waterfall" effect. The clause contains a number of alternatives, for example, starting from a very wide restraint and then proceeding to an increasingly narrow restraint in terms of future employment activities or in terms of length of time. Each one of the alternatives is severable from the contract if declared unenforceable by a court. Accordingly, a court might reject a restraint which provided for former employee X not to be employed in any pharmaceutical industry within South East Asia including Australia. The court, on the other hand, may be prepared to enforce a restraint which prevented employee X from being employed in the field of molecular genetic artificial-blood technology in either Melbourne or in Sydney for a period of one year. Such a restraint is far more precise and reasonably protects the former employer's confidential information whilst allowing the employee to seek employment in the general field of molecular genetics.

A court must also be satisfied that an employer's fears are genuine. For instance, is the information really secret and confidential? If the information is only knowledge which an employee would obtain through the repetitive working of his or her ordinary job, courts are less likely to regard this as secret or confidential information. Other sorts of information which are publicly available (even such as client contact details and price lists) may also not qualify. If there is no secret or confidential information, then there can be no restraint of trade.

Courts will also look to see whether the employee was specifically compensated for the restraint when first employed. If an employee received a specific additional sum as a hiring incentive for a longer than normal restraint of trade, courts are more likely to be persuaded that the restraint, when ultimately applied, is reasonable. The employee has accepted the restraint when first employed and has received a specific benefit for it.

Another factor which courts will examine is the seniority of the former employee. The more senior, the more likely it may be that the now departed employee may be capable of encouraging other staff to follow him or her and more capable of influencing former clients to switch allegiance. Alternatively, if the former employee was not employed in a managerial position and was only employed at either a junior or specific technical level, courts may be less worried about wholesale client or staff defections which would need to be prevented by the restraint of trade clause.