Is it time to update your Restraint of Trade Clauses?
In a recent matter before the Supreme Court of Queensland, AECI Australia Pty Ltd v Convey  QSC 207, it was determined that a restraint of trade clause that picks up other related entities of the employer may be so broad as to deny you interlocutory relief even if an employee breaches or threatens to breach the restraint.
In AECI Australia v Convey, AECI Australia sought a declaration that the employment agreement was binding and enforceable on a former senior employee and that he be restrained from any conduct in contravention of those obligations under the restraint of trade clause. The employee had accepted an employment offer from IPL, a direct competitor of AECI, within the restraint period.
The first restraint contended to prevent the employee from undertaking similar business for 12 months or, where unenforceable, 6 months within Australia without written consent, with any business identified in the contract. The second restraint contended to prevent the employee from soliciting, interfering with or attempting to entice away a material customer or habitual customer of AECI Australia.
The Court considered the restraint of trade clause as drafted and determined that it appropriately included IPL, as a related entity to Dyno Nobel Pty Ltd which was specifically named in the restraint. It was also determined that a prima facie case existed that the employee was threatening conduct in breach of the second restraint.
However, the restraint area in the clause was defined as ‘Australia’ and the clause as drafted included both AECI Australia and any entity in the ‘Group Company’, being AECI Limited. The Court considered this to be unreasonably broad and ruled that the contract appeared to have been drafted with the intent to protect the confidential information of all members of the AECI Limited group, rather than that of AECI Australia exclusively. The Court considered this scope to be more than is reasonably necessary to protect the legitimate interests of AECI Australia.
Essentially, the effects of the restraint “extended well beyond the sphere of AECI’s competition and its interest in the misuse of its own confidential information” and entered into coverage of AECI Limited entities who engaged in similar classes of activity in other areas of the world. It was further noted that the restraint only sought to prevent the employee from undertaking restrained activities while physically located in Australia; however, were the employee to travel away from Australia, he would not be restrained from undertaking those same activities, in circumstances where the intended work would be primarily international in any case. The result was that no prima facie case could be established in relation to the validity or enforceability of the restraints, and the application for interlocutory relief was dismissed.
What can be learned from this decision is that when drafting a restraint of trade clause to also include related entities that operate overseas or in vertical markets in a manner that is potentially broader than is necessary to protect the employing entity’s legitimate business interests, it is necessary to provide cascading restraints extending beyond time and location to ensure the clause remains enforceable. IRIQ Law has drafted new cascading restraint clauses in response to this case, which has been inserted into our employment contract templates. IRIQ can assist you to review your employment contracts where similar circumstances may result in your restraints being unable to be read down and therefore becoming unenforceable.