Researching Restraints of Trade
Restraint
Restraints
You understand and acknowledge that:
a.you occupy a responsible position with Emeco;
b.Emeco's relationship with its Clients are critical to the business;
i.it is in Emeco's legitimate business interests to promote the preservation of its relationship with its Clients;
a.it is in Emeco's legitimate business interests to protect the use by you or other of Confidential Information to
its detriment;
b.the restraints in this clause are reasonable and necessary to protect the legitimate business interests of
Emeco in the preservation of its client relations the good will of its business and its Confidential Information.
You agree not to engage (either directly or indirectly) in each or any of the activities specified in sub-clause
(a)(1) - (4), within the areas and for the periods after the Termination Date as specified in sub-clause (b)(1) ,
without the prior written consent of Emeco:
a) 1. provide or take part in the provision of consultancy services or otherwise perform work for or provide
products or services to a business competitive with the business of Emeco [the Competitor Restraint];
1.canvass, solicit or entice away or attempt to canvass, solicit or entice away the business of any Client [the
Non-Solicitation Restraint];
2.perform work for or provide products or services to any Client, except for where the dealings do not, or work
does not, involve or relate to the products or services provided by Emeco [the Client Restraint];
3.induce or attempt to induce any Client or any Person who is at the Termination Date an employee, agent,
director, officer, partner, consultant, contractor or adviser of Emeco, to terminate or to not renew any contract
of any sort which they may have with Emeco or to disclose any information in relation to the business or
affairs of Emeco which has been obtained by them through their dealings with Emeco [the Inducement
Restraint].
b) 1. In Western Australia for a period of 6 months, unless that period is held invalid for any reason by a court
of competent jurisdiction, in which case, 3 months.
Grant
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DP0987637 Mr C Fenwick; Dr W van Caenegem; Prof CJ Arup; Dr CM Dent
'Nothing Can Be Created Out of Nothing': Workers, Their Know-How and the Employment
Relationships that Support Them
Approved
Project Title
2009 :
2010 :
2011 :
$ 90,000
$ 70,000
$ 50,000
The University of Melbourne
The importance of innovation, either in the form of intellectual property or know-how, to the Australian economy
cannot be over-stated. Unlike statutory intellectual property schemes, worker-created know-how is both
'incentivised' and controlled through the contractual provisions of the worker-employer relationship. This project,
through its empirical focus, will explore if (and how) the law, as it relates to know-how, promotes innovation in the
workplace. Through the development of guidelines for best practice and reform proposals to fill gaps in the law,
this research will increase the potential for innovation in all worker-employer relationships which will, in turn,
maximise this country's creative and technological capability.
WHAT/WHOSE KNOWLEDGE? RESTRAINTS OF
TRADE AND CONCEPTS OF KNOWLEDGE
CHRISTOPHER ARUP*
[Where are the courts currently drawing the
lines, between the employer’s confidential
information and connections with customers
and the employee’s own explicit, tacit and
personal knowledge, when they are asked to
enforce restraints of trade? As part of the new
social economy, we see a temporal
contradiction — between the desire for
immediate control and the value of sharing
knowledge. This article examines the concepts
of knowledge the courts are using to
distinguish claims and to fashion remedies. The
assessment supports the primacy of this
approach and recommends ways the courts
should continue to refine and administer their
concepts.]
Contents
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Research inquiry
Decision making principles
Concepts of knowledge
Explicit, tacit and personal knowledge
Production and customer knowledge
Production knowledge in the courts:
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The employer’s explicit knowledge
The employee’s explicit, tacit and personal knowledge
The reach of the restraint
Remedies and the role of time
• Customer knowledge in the courts:
• Conclusions
Method
• The study proceeds first by clearing the ground of
other principles by which the courts might decide the
enforceability of restraints. It then enlists concepts of
knowledge from the social sciences to act as measures
of the discrimination with which the courts distinguish
between the parties’ claims to capital or labour.
• The research investigates how the courts are
discriminating by reading the decisions in the New
South Wales and Victorian jurisdictions in the last
decade. These decisions number over 100 and the rate
appears to be increasing.
Cases
• A list of cases is appended. The decisions were
located on the AustLII database, with some
guidance from the LexisNexis ‘CaseBase’ and
Thomson Legal Online ‘FirstPoint’ case citator
services. The decisions are limited to postemployment restraints, leaving aside exclusive
services contracts, or restraints on partners
and other commercial parties. My thanks to
Michael Cole for his painstaking research
assistance.
There can of course be a problem with
excessive reliance on decided cases. The
question of validity of a covenant in restraint
of trade (including, in this, a covenant
against solicitation of the covenantee’s
customers or clients) is not really a
question of law. Decided cases state the
relevant principles, and may prove useful,
indeed valuable, guidance as to their
application in particular factual circumstances.
But the validity of a covenant in restraint of
trade is to be assessed having regard to the
terms of the particular covenant and the facts
of the particular case.
McDougall J, Stacks/Taree Pty Ltd v Marshall
(No 2) [2010] NSWSC 77 at [54]
Recommendations
- When enforcing a restraint on work with competitors, the courts should insist that the
employer specify confidential information with precision, even if that information could be
said to have merged in the employee’s head with the employee’s explicit, tacit and personal
knowledge;
- in deciding whether information is confidential, and for how long it remains so, the courts
should place emphasis on the utility of the information and the ease with which it can be
externally acquired or duplicated;
- in deciding whether to protect the employer’s connection to customers, the courts should
first seek evidence of confidential information about customer service, before moving to
restrain the employee’s personal knowledge of and influence over customers;
- the courts should be very reluctant to find that the employee’s personal knowledge of and
influence over particular customers is ‘in truth’ attributable to the employer; and
- the courts should firmly favour restraints on activities that fall short of non-competition
and restraints that run in time strictly according to the utility of the employer’s information
RESTRAINTS OF TRADE: THE LEGAL PRACTICE
C. Arup*, C. Dent**, J. Howe*** and W. van
Caenegem****
In this article, following the introduction, we
identify the uncertainty in the legal principles
that contributes to the influence of the legal
practice. In the third section, the legal
proceedings are examined and some recent
cited decisions are mentioned. The fourth
section characterises the nature of the parties’
decision making about litigation and locates
the burden of uncertainty. The final section
nominates some reforms that are aimed at
reducing the burden – particularly as
experienced by employees who are subject to
the restraints.
Contents
• Research inquiry
• Legal uncertainty and the role of legal practice
• Legal proceedings: commencing proceedings,
apply for injunctions, settlements, trial and
disposition
• The variable of the court
• The burden of uncertainty
• Employee and employer resources
• Finings: Hard bargaining and inside knowledge
• Reforms
Method
• To explore the role of these variables, our research supplemented the
cited decisions, texts and papers with a set of interviews with legal
practitioners.
• We located twenty-four practitioners through a variety of sources,
including professional contacts, participation in court cases, profiles at law
firm websites and learned publications. We found that most (two-thirds)
of those practitioners were solicitors. They were employment law
specialists in the big national commercial law firms, the boutique
workplace practices and the traditional labour law firms. Some acted for
employers, some for employees, and some had a mixed clientele. We also
interviewed several barristers - and judges from two state supreme courts.
• We conducted interviews with practitioners in the capital cities of all
mainland States (though the majority were located in Brisbane,
Melbourne and Sydney). The interviews, carried out in 2010, 2011 and
2012, adopted a semi-structured format using a common set of questions
and following leads the interviewees gave us. Each ran over an hour.
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The Honourable Justice
Supreme Court of Victoria
15 August 2012
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The Honourable T F Bathurst
Chief Justice
Supreme Court of NSW
GPO Box 3
Sydney NSW 2001
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Dear Chief Justice
Academic Research Restraint of Trade Proceedings
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We write to request for permission to research the Court’s data regarding proceedings filed to
enforce restraints of trade.
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We have been granted Australian Research Council funds to research the relationships that
support the development and use of employee know-how. We are focusing our research on the
role of restraints of trade in employment contracts.
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Our research has involved interviews with senior practitioners in Sydney, Melbourne and
Brisbane. The interviews indicate that most disputes are settled, even after proceedings are
issued. Some proceedings are by way of an application for an interim order and very few go to
trial. We are interested in the statistics regarding this course of events. The published court
decisions provide only a limited picture.
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We can see from the Annual Reviews that the Court collects data on filings by jurisdiction (we
believe most restraint proceedings would fall into the Expedition List of the Equity Jurisdiction)
and also by manner of disposition. We were interested to know whether the restraint of trade
cases can be extracted from this data.
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If that is not the case, our request would be for access to the filings in the Court’s registry so
that we might ascertain the rate and progress of restraint proceedings. Such access might also
provide information about the components of the proceedings, for example whether they relate
to claims of confidential information or customer connection.
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We appreciate that this request is an imposition on the Court and on the Registry in particular.
If access can be granted, and the task is not too large, we shall employ a legal researcher to
conduct the searches and compile the figures. We wish to stress that we are all experienced
researchers with an appreciation of the sensitivity of case particulars. We are interested only in
the overall pattern of proceedings in the Court, not in the particulars of an individual case. We
have received ethics approval for our research from the University of Melbourne.
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We ask that you consider the request. We are ready to provide more information about our
research and of course to agree to protocols for this access to the records. Professor Arup is
available to attend the Court to discuss this further. Would it be possible for him to meet with
someone from the Court?
Dear Justice
Academic Research - Restraints of Trade
We have been granted Australian Research Council funds to research the relationships that
support the development and use of employee know-how. To make the best use of the
resources, we are focusing our research on the role of restraints of trade in employment
contracts.
Our research includes the nature of the principles that govern the enforceability of restraints
and the considerations applicable in each case. Our study takes us also to the practical
experience of the prosecution and adjudication of the applications to enforce restraints. Our
research has involved interviews with senior practitioners in Sydney, Melbourne, Brisbane and
Perth. We were also very kindly granted an interview with Justice Brereton of the NSW Supreme
Court. We would like to gain the insights of a member of the Victorian Court as the other main
jurisdiction in this area.
We have read the judgements delivered in the recent Victorian cases concerning restraints of
trade. They are each decided by a different judge and we thought it best to approach the head
of the Court’s commercial and equity division. Our request is to be granted an interview so we
might ask you about the demands on the Court of hearing and deciding these cases, as well as
any reflections you may have with respect to the operation of the law in this area. If the
opportunity to speak with you is not available, we ask, in the alternative, whether you might be
prepared to refer us to a fellow judge who would be close to this jurisdiction.
We wish to stress that we are experienced researchers with an appreciation of the protocols
that should be respected when conducting interviews with judicial decision-makers. We also
note that our research has received clearance from the University of Melbourne Human
Research Ethics Committee.
We ask that you please consider our requests. We are ready to provide more information about
our research and to agree to any protocols required by the Court for such an interview.
This research forms part of a project funded by
an Australian Research Council Discovery Grant
DP0987637 from 2009-2011. We would like to
thank the following people who assisted us, J.
Bornstein, P. Brereton, G. Dann, C. Dean, T.
Forno, E. Goodwin, S. Horneman-Wren, A.
Jegathesan, J. Kelly, A. Lunn, J. Lunny, L.
Mandie, A. Moses, A. Pagone, C. Power, P.
Punch, V. Rogers, M. Saraceni, G. Smith, L.
Smith and A. Stewart. These people generously
gave their insights on the basis of the
anonymisation of their responses. As a result,
all quotes and comments will be attributed to
a pseudonym. We have also been generously
assisted by various academic colleagues, as
well as the pioneers of empirical legal studies,
which we feel represent such a valuable
counterpart to formalist approaches.
Reforms
• Outlaw restraints
• Limit restraints
• - Legislative limits: limit length of restraint, require payment during
restraint
• - Judicial limits: make clear, conservative rulings, no modification to
restraints – make the employer specify precisely
• Procedural reforms
• - Shift from the supreme courts to an employment tribunal
• - Make it a no costs jurisdiction or control costs closely
• - Interlocutory injunctions: require a stronger case of employers or
withhold interlocutory relief in favour of trials and proof of damage
References
• C. Arup, What/Whose Knowledge: Restraints
of Trade and Concepts of Knowledge,
Melbourne University Law Review, 36, 369414, 2012.
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• C. Arup, C. Dent, J. Howe and W. van
Caenegem, Restraints of Trade: The Legal
Practice, University of New South Wales Law
Journal, 36(1), 2013.