When it comes to drafting post-employment restraints in employment contracts, it is important for employers to consider the purpose of the restraint and whether or not the restraint reasonably serves that purpose.
By their nature, post-employment restraints restrict the freedom of individuals to work in their chosen fields. For this reason, they are void and unenforceable as a default position. A restraint will only be valid and enforceable if it can be shown that it serves to protect a legitimate interest of the employer and that the restraint does nothing more than what is “reasonably necessary” to protect that interest.
A recent decision of the Magistrates Court of South Australia (the Court) provides an indication as to how difficult it can be to enforce a post-employment restraint if it goes beyond what is reasonably necessary.
In the matter of Lochdyl Pty Ltd v Lind [2024] SAMC 43, a hairdressing business had sought damages of $85,000.00 from a former employee as a result of what it considered to be a breach of her post-employment restraint.
The restraint prevented the employee from “diverting or attempting to divert from the [employer] any business it had enjoyed, solicited or attempted to solicit from its customers prior to the termination of the [employee’s] employment for a two-year period after termination”.
The employer alleged that the employee had breached this restraint by posting social media messages on her Facebook pages in the two days following the termination of her employment. In summary, the messages were:
The Court found that the employer had a legitimate business to protect in seeking to enforce the restraint. In particular, the Court noted that the employer had recently bought the business from the employee’s mother and sister and that it had paid valuable consideration for goodwill – a large part of which was the existing customer base. The employee, who had been working there for some twelve years, had developed personal connections with a large number of those existing customers and there was a risk that she might be able to take those customers away if she left the employer’s employment.
However, the Court found that the extent and duration of the restraint did more than what was reasonably necessary to protect that interest.
In making this finding, the Court noted that repeat customers often booked appointments into the future to secure the availability of a particular hairdresser or service, such as a colour, every four to six weeks. Often, a customer would book an appointment with two hairdressers to perform different services at the same time, or even a different hairdresser if their preferred hairdresser was unavailable, and it would take a hairdresser one or two appointments to establish a connection with a customer.
According to the Court, these key aspects were not supportive of the position that the employee should be restrained for two years – the employer could sever the employee’s connection with the customers in a much shorter time frame.
In addition to this, the employee was a casual employee who was paid an hourly rate that was only slightly higher than the minimum rate under the applicable modern award. Further, the restraint which referred to undefined conduct of the “diversion of customers” appeared to prohibit a broad range of activities (and not just solicitation of clients).
As a result, the Court found that the restraint was void and unenforceable.
What is “reasonably necessary” to protect an employer’s legitimate business interests will depend on the particular facts of a case, such as the time and geographical area required to protect the employer’s interest as well as the compensation paid to an employee during their employment.
As post-employment restraints are not a “one size fits all” protection, great care and consideration must be given to drafting these clauses in employment contracts to ensure that they are valid and enforceable if an employer is required to rely on them in the future.
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