Employee stopped from working for competitor of former employer...

The Employment Relations Authority has upheld an employer’s claim that an employee was in breach of a restraint of trade clause contained in his employment agreement. The employee was ordered not to work for a competitor in the area for six months.

The employee resigned from his role after seven months of employment with the employer. Upon the commencement of his employment, the employee signed an employment agreement which contained a restraint of trade clause. This clause stated that the employee was restricted from working for another employer in the same region and prohibited from enticing away colleagues, for six months following the resignation.

Two weeks before the employee’s final day of employment, the employee informed the employer that he had been offered a position at a competing business, but stated that he would be working in the recruitment team, and therefore would not be in breach of the restraint of trade clause.

Soon after this, the employer received information that the employee had attended a customer’s site, and had gotten another employee of the employer a job offer at his new place of employment.

The employer applied to the Authority for an interim injunction to stop the employee from continuing to work for the new employer.

The Authority had to decide whether there was a valid reason for there to be a restraint of trade clause in the employment agreement, and whether, on the balance of convenience, it was necessary to prevent the employee from working for a competitor.

It was decided that the restraint of trade clause was necessary, as the employer had proprietary interests that the restraint of trade clause protected.

As well as this, it was decided that the potential harm that a failure to enforce the restraint of trade clause could have on the employer was significant, whereas it was found that the impact on the employee was not nearly as severe, as he had already ceased working for the new employer at the time of the hearing.

The Authority granted the interim injunction, and the employee was prevented from working for a competitor in the region, for six months. The ERA reinforced that gone are the days when an employee can treat restraint of trade clauses as if they were not worth the paper they were printed on.

If there is confusion around whether a restraint of trade clause is enforceable or not, it pays to seek advice from a professional with experience in the area.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Alan Knowsley & Matthew Binnie

Litigation Team
Wellington