News: Can you prevent former staff from working for your rivals?

Employee Relations

Can you prevent former staff from working for your rivals?

A Federal Court ruled against restricting employees from working for their employer's competitors. Here's why.
Can you prevent former staff from working for your rivals?

A Queensland Federal Court justice has rejected United Petroleum’s bid to prevent a former employee from taking a job with a rival company. 

Justice John Snaden ruled against United Petroleum’s request to keep a former wholesale manager from working for a direct competitor IOR Petroleum. United Petroleum cited a restraint-of-trade clause as the basis for their request. 

However, Justice Snaden deemed the enforcement of the restraint as going beyond protecting legitimate commercial interests.  

Invoking restraint of trade clause

United Petroleum alleged that the manager had accepted the job at a rival in the aviation fuel market. This was an area that United Petroleum CEO David Szymczak said they also had planned to expand into.

In his evidence to the court, Szymczak claimed that as a senior employee, the manager was aware of United Petroleum’s  commercial strategies related to the expansion.

However, the manager pointed out that United Petroleum was not in the business of marketing or supplying aviation fuel and that, even if the petrol company did, he said he was not involved in any of those functions while working there.

In his ruling, Justice Snaden said United Petroleum’s restraint-of-trade clause appeared “to trespass beyond what was necessary to protect legitimate commercial interests”. He added that the clause did not require the worker to confidential information – only “the advantage it might afford if possessed”.

Read more: How to quit your job gracefully

Victory for workers

United Petroleum is not the only employer to have a restraint-of-trade clause for its workers. Giri Sivaraman, a principal at Maurice Blackburn, told the AFR that the clause was “very commonly demanded by employers in employment contracts”.

“Employers rely on their superior bargaining power and the implied threat of litigating on the clauses to keep employees from working for competitors rather than the actual legality of the clauses,” Sivaraman said.

“The judgment shows that a clause that goes beyond protecting legitimate commercial interests shouldn’t be enforceable ... it’s a message to employers that you can’t just put in a broad restraint clause and expect compliance.”

Justice Snaden’s ruling is viewed as a significant win for employees who have been kept from working elsewhere due to the restraint-of-trade clause.

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Topics: Employee Relations

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