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Court enforces IT employee’s 4 year restraint of trade

The Supreme Court of Victoria has granted an injunction to an IT company (‘the Applicant’) that commenced an interlocutory application to have an employee (‘the Employee’) restrained from working for a competitor for four years.

Prior to June 2016, the Employee had a company which owned 40% of the shares in the Applicant’s company.  The Employee subsequently sold those company shares to another company for $3.5 million under a share sale agreement (‘Agreement’).

The Agreement provided that the Employee was to continue as an employee of the Applicant and through the Agreement he was subject to a number of restraints which would operate for a period of up to four years.

At issue in these proceedings was that the employee, alongside his continued employment with the Applicant, was also working for a direct competitor of the Applicant.  He had been working for the competitor for one day per week, in return for payment of $5,000 per month.

Justice McDonald found that the Applicant was entitled to an order that prevented the Employee from working for a competitor until June 2020. There was also confirmation of a restraint that the Employee could not solicit the Applicant’s employees to work for a competing business.

In making a decision to uphold the restraint, Justice McDonald made the following comments:

“I consider that the four year restraint period is reasonable. First, [the Employee] had worked [with the Applicant] since May 2001. He was designated in cl 1.1 of the Agreement as a ‘Key Employee’.  Second, the four year restraint period is a term in an agreement which was freely entered into by [the Employee’s] company…. Third, [the Employee was] paid a substantial amount of consideration in return for the terms of the Agreement, including the restraints imposed upon [the Employee]. Fourth, although the Restraint Period operates for up to four years, the Agreement provides for [the Employee] to continue as an employee of [the Applicant]….”

Whilst upholding the restraint in relation to the Employee working for competitors and soliciting employees, Justice McDonald declined to uphold the restraint regarding the solicitation of customers, unless a list of the relevant customers was prepared and annexed to an order of the Court.

Lisa Aitken is an Accredited Specialist in Workplace Relations Law and the Managing Director of Aitken Legal, a law firm specialising in employment law for employers. The information in this column is intended as a guide only.  Liability limited by a scheme approved under professional standards legislation. www.aitkenlegal.com.au.