Intro to Law Case Study:
Question 1:
Main Issue: Will Danny be in breach of his contract with Meg if he agrees to work with John
instead?
Issue 1: Is the Restraint of Trade Clause ENFORCEABLE?
If it can be established that the restraint goes no greater than is necessary to protect the
legitimate interest that the clause is designed to protect, then the clause is valid and
enforceable (Graw, 2020)
Mini Issue 1: Is the Restraint of Trade Clause Enforceable based on TRADE SECRETS and
CONFIDENTIAL INFORMATION?
Rules: Herbert Morris Ltd v Saxelby [1916] 1 AC 688
An employer seeking to make a restraint enforceable must prove three things:
-
that the information to be protected is in fact a trade secret
that the employee has sufficient knowledge of that trade secret to exploit it
that the employee acquired the knowledge in the course of the employment (Graw,
2020)
Application:
In the Saxelby case, the clause prevents the employee from competing in enterprises in the
UK for seven years. The court found that the restraint of trade clause was void and
unenforceable as the ‘trade secrets’ Saxelby had learnt were no more than general
knowledge any employee would gain from working.
Since Danny has advanced computer skills and is well known for voluntarily teaching
computer skills, he hasn’t acquired a ‘trade secret’ or knowledge during the course of
employment as he is bringing his skills and knowledge to Meg’s accounting practice to help
set up a computer program. However, Meg may argue that the computer program is specific
to her business in terms of the source code. A computer program can qualify for a trade
secret protection as long as it is not generally known (Maier, 1987) but since the program is
known by Danny and not the practice then it shouldn’t qualify as a trade secret.
Conclusion:
NO, the clause isn’t enforceable in terms of trade secrets and confidential information as
Danny didn’t acquire any ‘trade secret’ or knowledge during employment.
Mini Issue 2: Is the Restraint of Trade Clause Enforceable based on the RELIEF AVAILABLE?
Rules: Rentokil Pty Ltd v Lee (1995) 66 SASR 301
For a clause to be enforceable:
-
the restraint can only cover the geographical area in which the business operates
and
can only operate for such time as the employee’s knowledge could threaten those
legitimate interests (Graw, 2020)
Application:
In the Rentokil case and OURS the employment contract contained a non-compete clause
which outlined a geographic and time restraint on trade. The court held that the restraint
was enforceable in terms of the geographical area but the words ‘in any capacity’ were too
broad and not enforceable.
Since the geographic location in which the Meg’s business operates is unknown, it’s difficult
to determine whether the geographic restraint on Danny’s trade will be enforced. If the
practice operates within 25 kilometres, then the court can enforce the geographic restraint.
However, Danny can argue that John’s dairy farm isn’t a direct competitor to Meg’s
accounting practice as they don’t operate in the same industry, and he would have a
different customer base not threatening her legitimate interests.
Conclusion:
NO, the clause isn’t enforceable based on the relief available as John isn’t a direct
competitor to Meg. Therefore, the restraint imposed on Danny isn’t reasonable in
protecting the legitimate interests of Meg making the clause void and unenforceable
Issue 2: Can the contract be void on the basis that Meg acted UNCONSCIONABLY and that
Danny was under a SPECIAL DISADVANTAGE?
The case study raises the issue of unconscionable conduct when there is an ‘inequality of
bargaining power’ (Graw, 2020) between the parties. If it can be proven that one of the
parties to a contract conducted unfairly, the other party may be able to rescind the contract
if they’re under a special disadvantage.
Rules: Commercial Bank of Australia v Amadio (1983) HCA 14
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
A plaintiff seeking to have a contract set aside for unconscionable conduct must prove three
things:
-
that he or she was under a ‘special disadvantage’ vis à vis the person alleged to have
acted unconscionably
that that other person was or should have been aware of that disadvantage; and
-
that it was unfair or unconscionable for that other person to procure the agreement
in the circumstances in which it was procured (Graw, 2020)
The ‘special disadvantage’ can take any form if as a consequence, the weaker party loses the
ability to make a logical decision in their own best interests.
Application:
In the Amadio case the special disadvantage was that they were an elderly Italian couple,
with little understanding of written English and lacked a formal education. In the Garcia
case, the wife signed guarantees with the bank that she didn’t understand. In both cases the
court ruled that the guarantees couldn’t be enforced as the people offering the contract had
knowledge of the persons special disadvantage and still approved the contract.
Danny’s situation is similar as he was clearly at a special disadvantage due to his autism
preventing him from reading large slabs of text. Meg knew about Danny’s autism when she
arranged for Danny to sign the contract. Therefore, Meg acted unconscionably and unfairly.
Conclusion:
YES, the contract is void making the guarantee (restraint of trade clause) unenforceable as
Danny wouldn’t have signed the contract if he knew Meg would be underpaying him.
Main Conclusion:
NO, Danny will not be in breach of his contract with Meg if he chooses to work for John as
she acted unconscionably when arranging the contract and the restraint of trade clause isn’t
reasonable in protecting her legitimate interests.
Question 2:
Introduction:
Under the Australian Consumer Law (ACL), Danny can bring an action against Meg in her
negotiations of the contract as the ACL prohibits any misleading or deceptive conduct by
employers prior to the commencement of employment. The relevant sections of the ACL are
ss 31 and 18 which outlines misleading and deceptive conduct in relation to employment
and if it can be proved that Meg contravened these sections, then Danny can claim damages
under s236.
Section 31 of ACL: Walker v Salomon Smith Barney Securities Pty Limited (2003) 140 IR 433
S31 applies to conduct that is ‘liable to mislead persons seeking employment’ (Paterson,
2019) which occurred in the Walker case. For there to be a breach of s31, Danny must prove
that Meg’s conduct was liable to mislead, that he relied on the misleading conduct and that
he suffered loss or damage because of the deceptive conduct (G&J, 2015). Meg’s conduct of
telling him there is nothing untoward in the contract results in Danny signing it, clearly
illustrating that the conduct is liable to mislead as Danny’s reliance on Meg’s statement
becomes a false representation once he discovers that Meg had been underpaying him.
Danny visibly suffered a loss in the form of money from Meg’s conduct as she can determine
when his services are not required and that he will not be paid for weekends. As such, Meg’s
conduct was liable to mislead as it resulted in a loss of money for Danny.
Section 18 of ACL: Butcher v Lachlan Elder Realty Pty Ltd (2004) 21/ ACCC v Zanok
Technologies Pty Ltd [2009] FCA 1124
S18 relates to conduct that is ‘misleading or deceptive or is likely to mislead or deceive’
(Paterson, 2019) and in the Butcher case the court ruled there was no deceptive conduct as
there was no intention to deceive. For there to be a contravention of s18, Danny must show
that there existed a real chance that he might be misled by her deceptive conduct. To prove
if the conduct is misleading, the court must consider the nature of the conduct of Meg in
relation to Danny, taking into account the facts each knew about each other as a result of
the nature of their dealings (G&J, 2015). Meg is aware of the fact that Danny has autism as
he tells her he has problems reading large slabs of text. She takes advantage of this by
telling him there’s nothing untoward in the contract as she wants to improve her practices
computer program demonstrating that her state of mind during the arrangement of the
conduct was deceptive as she mislead Danny into a contract based on false representations.
In the case of Zanok, the ACCC found that Zanok mislead foreign students by claiming that it
had paid employment opportunities in Melbourne and Sydney when it was only offering IT
training for a fee of $4,700 (ACCC, 2019). The students relied on this statement similar to
Danny relying on Meg’s false statement illustrating that employers are liable for misleading
conduct in relation to employment and can have actions brought against them under s236.
Section 236 of ACL:
Since Meg has contravened ss 18 and 31, Danny can claim damages under s236. To be
awarded damages by the court, Danny must prove that there is a casual link between the
loss claimed and the contravening conduct (G&J, 2015). To calculate the loss incurred, a
comparison between the position the employee is in with the position the employee
would’ve been in if it wasn’t for the deceptive conduct is required (G&J, 2015). Danny
clearly lost a sum of money when he worked without payment and this loss directly links to
Meg’s deceptive conduct of stating there was nothing untoward in the contract even though
the non-payments are clearly untoward. As such, Danny can claim loss under s236 for a sum
of money equal to his working hours on those unpaid Saturday’s.
References:
ACCC. (2009, October 6). Court finds Zanok Technologies, directors misled foreign IT job
seekers. https://www.accc.gov.au/media-release/court-finds-zanok-technologies-directorsmisled-foreign-it-job-seekers (ACCC, 2019)
ACCC v Zanok Technologies Pty Ltd [2009] FCA 1124
Butcher v Lachlan Elder Realty Pty Ltd (2004) 21
Commercial Bank of Australia v Amadio (1983) HCA 14
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Gordon & Jackson List Member. (2015). Misleading or Deceptive Conduct in Employment.
https://svensonbarristers.com.au/wpcontent/uploads/2017/07/18_december_2015__misleading_or_deceptive_conduct_in_em
ployment_mark_irving_12_nov_15_sample.pdf (G&J, 2015)
Graw, S. (2020). An Introduction to the Law of Contract (1). Thomson Reuters (Professional)
Australia Pty Limited (Graw, 2020)
Herbert Morris Ltd v Saxelby [1916] 1 AC 688
Maier, G. (1987). SOFTWARE PROTECTION–INTEGRATING PATENT, COPYRIGHT AND TRADE
SECRET LAW. Oblon. https://www.oblon.com/publications/software-protection-integratingpatent-copyright-and-trade-secret-law#* (Maier, 1987)
Paterson, J. (2019). Corones' Australian Consumer Law (4). Thomson Reuters (Professional)
Australia Pty Limited (Paterson, 2019) (Paterson, 2019)
Rentokil Pty Ltd v Lee (1995) 66 SASR 301
Walker v Salomon Smith Barney Securities Pty Limited (2003) 140 IR 433