Restraint of trade in employment – giving of undertakings

The recent case of SAI Global Property Division Pty Ltd v Jones [2018] NSWSC 438 provides a useful reminder of the principles at play for employees and employers when a restraint of trade (aka non-compete) clause in an employment contract is the subject of a dispute. The decision is not a final decision, rather a determination of an application for an injunction.

In this case, the giving of ‘undertakings’ by the employee played a significant role in the outcome.

SAI Global was unsuccessful in attempting to injunct Mr Jones from working for a competitor (InfoTrack). Mr Jones had been employed by SAI Global for a period of less than two years.

The case reaffirms a basic proposition when it comes to restraint of trade doctrine; that is, such clauses will not always be enforced. Whether or not a restraint of trade will be enforced depends on the circumstances of the case and the conduct of the parties, both during and after the contract of employment comes to an end.

Of note was the fact that the parties had been engaged in correspondence between lawyers before Mr Jones formally accepted the position with InfoTrack. In particular, Mr Jones had given certain undertakings in order to placate the concerns of SAI Global, which proved to be an effective strategy. The undertakings included:

  • Not using or divulging confidential information of SAI Global
  • Not creating copies of confidential information of SAI Global

(for a period of six (6) months):

  • Not solicit clients of SAI Global
  • Not interfere with the business of SAI Global
  • Not solicit prospective clients of SAI Global

SAI Global did not accept these undertakings as an end of the dispute and commenced proceedings seeking urgent interlocutory relief – which failed.

Whilst clearly not the determinative issue in the case, the giving of the undertakings by Mr Jones was a relevant consideration for the Court in deciding whether or not to grant the injunction:

[126] …a concern that Mr Jones’ prior customer contact might be used to the plaintiff’s disadvantage with a competitor has been effectively answered by the undertakings that have been offered and subject to any adjustment can be now accepted, or made the subject of orders. And in my view, those undertakings (or orders in their place) can be made more effective until final hearing by a requirement for the defendants to retain information and provide other information to the plaintiff…(Per Slattery J at [126]).

It should be pointed out that simply because the injunction was not granted does not mean that Mr Jones does not face a claim for breach of contract later on. This case considered whether or not an injunction to stop Mr Jones from continuing to breach the terms set out in his employment contract should be granted. The final determination of the case has been left open.

However, the case provides a useful insight into how parties negotiate disputes relating to restraint of trade clauses when an employee goes to work for a competitor. In these kinds of cases, employees should always look at offering undertakings, especially in relation to confidential information. The implications of taking such steps early on can be dramatic for an employer if they are not accepted.