Post-employment restraint of trade – clients & customers

By Jacob Carswell-Doherty

Most employment contracts now contain a post-employment restraint of trade clause which restricts employees from working with clients or customers of the employer following termination of employment.

We see a lot of contracts which put a 12 month time period on these restrictions. But can an employer prevent a former employee from working with clients or customers for a period of time, or at all?

Working with clients or customers 

Post-employment restrictions will generally not be enforced by a Court because they are against public policy, unless the employer can identify a “legitimate interest” which needs protecting.

In the case of clients or customers, in order to successfully enforce a restraint, the employer must show that the employee:

  • was the human face of its business; and
  • is able to use “some advantage or asset inherent in the business which can properly be regarded as the employer’s property” ; and
  • has “personal knowledge of and influence over” the clients/customers.

(see Stenhouse Australia Ltd v Phillips [1973] UKPC 1)

The employer needs to prove that the employee could use these factors to gain an unfair advantage over the employer in the market place.

An example of where an employee, in this case an accountant, will be restrained from working with clients is where there was a close relationship with the client and detailed knowledge of  that’s client’s business. In Birdanco Nominees Pty Ltd v Money [2012] VSCA 64 the Court upheld a restraint as it related to clients and said:

“Depending on the degree of contact between the employee and the client, the client will have built up a degree of confidence that the employee has knowledge and understanding of its affairs and accounting requirements. The knowledge and understanding of the employee and the corresponding confidence the client has in that employee form an important part of the goodwill of the firm.”

Another factor, which is similar to what is quoted above, is trust and confidence. If a client divulges confidential information to an employee during the course of their employment then the relationship of trust and confidence between client and employee increases. Courts will see this as an important factor when deciding whether or not to enforce a restraint.

A good lawyer faced with a client in this situation should always look at ways to fine tune the new relationship so both parties can move on and to avoid the  resort to litigation. This necessarily involves compromises from both sides. Most of the time, the parties will agree to carve out a restraint so that it just covers a single client or a specific thing. Negotiation is key and the earlier the parties look at the problem from this perspective, the better.