Specific confidential information justifies post-employment restraint

The Federal Court has provided guidance on the drafting and enforcement of post-employment restraints in the recent case of Techforce Personnel Pty Ltd v Jaffer [2023] FCA 1674.

Facts

In this case, the applicant was the former employer of the respondent employee. The employer’s business provided labour-supply and the employee had been a business development manager. In October 2023, the employee resigned from his employment but prior to finishing up, emailed a document containing a list of clients and their contact details, a proposal for a client and the terms and conditions of service for another client to his personal email address. The employee also notified clients that he was moving to a new employer and provided details to contact him at his new employer. Subsequently, some of the clients reached out to the employee at his new employer. The employer sought an urgent interlocutory injunction, alleging that the employee had breached the non-solicitation restraint and confidentiality clauses in his contract of employment. The Court granted the order.

Decision

In his decision to grant the injunction, Feutrill J provided the following useful guidance on the drafting and enforcement of restraint clauses:

a restraint clause “must identify with specificity, and not merely in global terms” the information which is the subject of the restraint;
the information which is the subject of the restraint must be characterisable as “confidential information”, meaning that it needs to have the necessary quality of confidentiality (i.e. it is not information that is publicly available or accessible) and should have been received by the former employee in such circumstances as to import an obligation of confidence; and
for an employer to be able to enforce a restraint, there must be actual or threatened misuse of the information the subject of the restraint.

Feutrill J also acknowledged that it was appropriate for a restraint of trade clause to be included in the employee’s contract of employment given his role as a business development manager meant that he had access to a wide range of confidential and commercially sensitive information, as well as direct contact with clients.

The employee attempted to defend his actions by stating that the clients had reached out to him following his change in employer (as opposed to the other way around) and that he had therefore not breached the non-solicitation restraint clause as he had not “solicited” the clients. However, Feutrill J rejected this argument, commenting that “whether solicitation occurs depends upon the substance of what passes between [the employee and the client] once they are in contact with each other.”

Key Takeaways

Restraint clauses are a key means of protecting a business once an employment relationship has come to an end. This case is a timely reminder to ensure that the restraint clauses in your contracts of employment are fit for purpose and enforceable. It is worth considering:

does the restraint clause clearly identify the information that the employee is restrained from using and the period and/or location in which they are restrained from using it?;
is the information you are restraining the employee from using “confidential” in nature?; and
it is reasonable to restrain the employee from using the information and/or using it in that specific way? Generally, a restraint is reasonable where a breach of that restraint may cause or will cause your business to suffer a detriment.

If you would like assistance reviewing the restraint clauses in your contracts of employment, please let us know.