When recruitment agencies take on new staff, it is usual for them to complete a contract of employment. It is also usual for these contracts to include, amongst other things, details of what the employee can and, more importantly, cannot do when that employment ceases. And that is when problems can often start, especially if you and the employee have parted on bad terms. Problems often start when we look at what are known as ‘restraint of trade’ clauses. These clauses, common in contracts for many occupations, try to lay down restrictions on where and for whom the, by now ex, employee can work - the idea being that he or she should not be able to cherry-pick all your best clients and use them for the benefit of the next job.
Firstly, it makes very good sense to treat your employees well whilst they are with you - aside from the obvious reasons, this may also reduce the likelihood of their trying to damage your business when they have left you. Whilst there are legal rules about what an ex employee can do, in terms of how their actions can affect your continuing business, it is a fact that a disaffected ex employee can be damaging to you, can cost you a lot in terms of customer goodwill, trust, and so on, as well as having a serious financial impact on your balance sheet.
Secondly, you should be thinking very carefully about what you are putting in to your employment contract, because:
You don’t want to put in provisions that are illegal;
You don’t want to put in provisions that are so onerous that you won’t be able to monitor whether or not your ex employee is complying;
You don’t want to give your employee the impression, as soon as he or she starts to work for you, that you are an overbearing employer who will try to ensure that the employee will never, ever, be able to work again in your line of business.
Let us say, for example, that you have made a job offer to Joe, that he has accepted, and that you have handed him the employment contract to peruse. (Yes, Joe must have the chance to read this, by himself, before he signs). After all the talk about pay, holidays, super contributions, disciplinary procedures and so on, he will get to the bit about what conduct is expected of him when he leaves your employ. Here he will find the restraint of trade clause which, usually, will say for how long he is prevented from working for a competitor firm, within what geographical radius this restriction is to apply, whether or not he can work for one of the firm’s clients, and so on.
This is where troubles so often arise, and unfortunately there is a lack of good federal law on such matters, so that to find out what you can and can’t restrict very often relies on state case law. Fortunately, however, the large number of cases that have come before the courts over the years have resulted in some degree of convergence between the states, and so some general guidance can be given concerning restrictions in the employment contract. New South Wales has gone one stage further by enacting the Restraints of Trade Act (1976) to formalise matters – to date, Queensland has made no comparable legislation, instead relying on common law principles.
Restraint clauses must, firstly, be reasonable in their scope and duration. What is ‘reasonable’, of course, is a matter of judgment given the circumstances involved but you cannot take away a person’s ability to work in the area for which they are trained and in which they have experience. You can, however, delay their ability to return to that type of work for such time as would reasonably allow you (the former employer) to cement your relationships with your clients to try to prevent them being lost to the ex employee, or to sever that person’s connection with those clients. Periods of 6 months or 12 months, for example, are often seen in restraint clauses and the courts have, in individual cases, found those periods to be reasonable.
What sort of geographical area is reasonable? This depends very much on what sort of firm you operate and over what sort of area you are represented. If you have just one office trading out of a village, for example, and you are catering to local clients then you might find it difficult to stop your ex-employee working in a different state, or even a different part of the same state. On the other hand, if you are a national company with national or international clients, then a restraint applying to the whole of Australia may well be regarded as reasonable.
The situation in New South Wales is special, because the existence of legislation means that the courts there have discretion to reduce the severity of unreasonable provisions within a restraint clause to a reasonable level. Courts in other states and territories do not have such discretion, so that if a restraint clause is held to be unreasonable then the only option available to the courts is to set the offending clause aside.
That is why ‘cascading clauses’ have come in over recent years. These contain alternative time periods and geographical areas, such as “… the employee is not to work in the recruitment industry (or whatever) for a period of 1 year, or 2 years, or 3 years or such period as the employer shall deem appropriate and nor shall he be able to seek employment within the recruitment industry during such period anywhere in Queensland, or Australia, or worldwide, the decision being subject to the employer’s discretion”
Outside New South Wales, the Courts can select any of the options given by the clause (assuming any are found to be reasonable) without the whole clause failing completely.
Incidentally, and for those on fixed term contracts, recent case law indicates that the restrictions within a restraint clause apply from the date of termination of employment, and not from the end of the contract period.
Whatever you do, as an employer, do not try to put in conditions or restrictions that are nothing to do with the protection of your legitimate business interests. Any such matters either belong elsewhere in the contract (such as expectations of conduct or dress) or in the waste bin! And don’t forget that an employee is entitled to take with him, for the benefit of his next employment, the skills and experience he has hopefully gained whilst working for you. All that you can try to protect is the confidential details, client relationships, etc., that he acquired during his work for you.
Also, as the employer you must not breach your own obligations under the employment contract. If you do, so that the employee would feel justified in ending their employment with you, then you may well find that your post-employment restraints are unenforceable – and you might find yourself on the wrong end of a constructive dismissal allegation.
If this all sounds a bit heavy, just remember that your employees are to be valued and treasured, not feared. Don’t try to tie their hands too severely when they leave you, because it will cost you time and money to fight a battle you may well not win – and you will gain an enemy you could really do without! Competition is healthy, and if you can gain a reputation for excellence and propriety in the way you conduct your business, you’ll always have plenty of work.
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