When seeking to enforce a restraint, it is important that employers seek to enforce the restraint in a timely manner to prevent future or an ongoing breach. Any delay will be considered by the courts when assessing whether it is reasonable to enforce the restraint.
The employer’s lack of urgency in commencing proceedings against a former employee was sufficient for the NSW Supreme Court (the Court) in Scyne Advisory Business Services Pty Ltd v Heaney [2024] NSWSC 275 to decline to grant an order enforcing the restraint.
The employee was employed as a management consultant providing consulting services to the Commonwealth Department of Defence (Defence Department). In October 2020, the employee commenced employment with PriceWaterhouseCoopers (PwC) and subsequently became a junior partner. In 2024 the employee was employed by Scyne Advisory Business Services Pty Ltd (the employer) following PwC’s sale of its public sector consultancy business.
The employee’s employment contract included a gardening leave provision and a post-employment restraint which sought to prohibit the employee from being employed within a geographical area and within a period of time by any business which competed with the employer to perform duties or provide services:
At its highest, the restraint was for a maximum period of 12 months and covered the whole of Australia.
On 29 November 2023, the employee resigned and advised the employer that she would be taking up employment with another public sector consultancy business which provided services to the Defence Department.
The employer sent a letter to the employee on 7 December 2023 placing her on gardening leave until the end of her notice period on 29 February 2024. The letter also reminded the employee of her post-employment restraints and requested that the employee sign an undertaking confirming that she would not performing any work for her new employer or any competitor of the employer for 12 months from the end of her employment.
In response, while the employee confirmed that she would comply with her confidentiality and intellectual property obligations, she refused to sign the undertaking and stated that in her view, her new employment was not in breach of her post-employment restraint.
On 21 December 2023, the employer’s lawyers sent a letter to the employee requesting that she sign the undertaking and threatening to commence proceeding seeking an injunction if she did not sign and return it.
Thereafter, the employer’s lawyer sent further letters – on 28 January 2024 and 28 February 2024 (just before the end of employment), demanding that the employee sign the undertaking. Each time, the employee’s lawyer responded back maintaining the employee’s position and advising that it had instructions to accept service.
On 4 March 2024 the employer commenced urgent proceedings in the Court seeking interlocutory and final orders restraining the employee from being employed by the new employer in any role which she provided consulting service to the Defence Department.
In considering whether to grant the interlocutory injunction, the Court was satisfied that the employer had legitimate business interests to protect and that there were reasonable prospects that orders restraining the employee would be made if the matter proceeded to hearing. Similarly, the Court was also not satisfied that the employee had demonstrated sufficient hardship would be caused by granting the interlocutory injunction to displace the balance of convenience against granting the interlocutory injunction.
However, the employee argued that the employer’s delay in seeking an injunction had disqualified it from now seeking an interim injunction. The employer argued that:
The Court did not accept the employer’s submissions. The Court stated that the employer could have sought an injunction while the employee was on gardening leave if there was evidence of a threatened breach and did not have to wait for an actual breach. The Court also did not accept that the employer delayed commencing proceedings because it believed there could be a negotiated outcome, rather it noted that the employer threatened to commence proceedings and the employee remained firm in her position that she would not sign the undertakings.
The Court agreed that if an application for an interlocutory injunction was made while the employee was on gardening leave, the matter may have been resolved.
Given this, the Court found that the employer’s delay in seeking an injunction meant it was unreasonable to now restrain the employee from commencing employment with the new employer.
The Court refused to grant the interlocutory injunction and ordered the employer to pay the employee’s costs.
Post-employment restraints are an important tool that employers have to protect their legitimate commercial and business interests. Often employers do not immediately seek to commence legal proceedings if there are prospects that the parties can reach an amicable resolution. As this case demonstrated, where a threatened or actual breach of restraints is identified, it is important to act quickly and seek legal advice as any delay could be fatal in whether a court determines to grant relief.
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