restraint of trade lawyer

Court enforces restraint of trade to protect confidential information

In the case of DP World Sydney Ltd v Guy [2016] NSWSC 1072 the NSW Supreme Court enforced a restraint of trade clause against an employee to protect confidential information.

The employee (Bruce Guy) was a General Manager of a logistics company, DP World Sydney Ltd, and had access to confidential information during the course of his employment. Once the employee gave notice of resignation he was put on gardening leave for 3 months. Following this, he took up employment with Asciano Executive Services Pty Ltd. DP World knew of the employee’s plans to seek new employment at the time of resignation but did not apply for an injunction until at least 3 months later.

DP World also joined Asciano as a defendant in the proceedings.

In granting the injunction to restrain the employee from taking up employment with Asciano Executive Services Pty Ltd for a period of 6 months, the Court found that the employer had a right to protect its legitimate business interests because:

  • Guy held a senior role and had access to confidential information.
  • The industry DP World operated in was small with few competitors.
  • Guy had built up significant client relationships during his employment.
  • DP World offered to pay 3 months salary during the restraint, mitigating financial hardship on the employee.
  • The delay in bringing the injunction was not substantial enough to bar DP World from obtaining an injunction.

Justice White (at [30]) said:

Although an employer is not entitled to protection from competition, a restraint for a limited period against a former employee working for a competitor may be justified on the grounds that such a restraint is necessary to protect trade secrets, or confidential information. This is because of the difficulty of proving a breach of an obligation not to disclose or use such confidential information (The Littlewoods Organisations Ltd v Harris [1978] 1 All ER 1026 at 1033 and 1038; Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564; Woolworths Ltd v Olson at [67]).

What information did Mr Guy know, justifying restraint?

The Court agreed that the Guy’s knowledge of the following information of DP World was sensitive enough to warrant a restraint:

  • Identity of particular clients
  • Fees charged to those clients
  • Knowledge of terms of client contracts and when those contracts expired
  • Knowledge of details about DP World’s expansion plans, such as “where and what expansion was targeted, projections of customer volumes, revenue, EBITDAand margins.”

At [50] White J concluded:

Having regard to the seniority of Mr Guy’s position, the nature of the plaintiff’s business, the small number of competitors operating in the same port as DP World and, in particular, the confidentiality of the information that Mr Guy would be expected to obtain and use and which he did so acquire, I think such a six-month restraint is not larger than is reasonably necessary to protect DP World’s legitimate interests in preserving its confidential information.

At [60]…

The justification for the restraint by an employee against taking up employment with a competitor is not to protect the employer from competition. Its justification is that such a restraint is necessary, or may be necessary, depending on the circumstances and the length of the restraint, in order to protect the employer from either a witting or an unwitting disclosure of such confidential information, having regard to the difficulties that an employer faces in attempting to identify or prove any such breach.