On entrenched employees, exasperated employers, and restricting re-employment: part 5 (bonus!).

So I thought I was done with this series¹ on non-compete clauses.

But then this High Court decision dropped.²

In short, an ex-employee of MoneySmart has successfully resisted his ex-employer's attempt to enforce a non-compete clause against him.³

I don't propose to rehash the coverage from CNA⁴ and Mothership⁵. Instead, I make 3 observations on what this case means for employers.

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1⃣ Employers impose broad restrictions at their own peril.

Observers in this space would know that a non-compete clause that is drafted too widely risks being unenforceable.

Crucially, it is the employer who has to show that the clause is reasonable.

Here, the Court looked past the employer's broad motherhood statements, and challenged the employer specifically on:

a) what exactly was the information being protected;
b) whether it was truly confidential;
c) whether the confidentiality clause already in place rendered the non-compete clause superfluous and therefore unenforceable;
d) whether the employer was in a "small and specialised" industry (such that a non-compete clause was needed to maintain a "stable and trained workforce"); and
e) whether the employer had provided the employee with specialised training and invested in the employee's development.

So employers: if you're looking to enforce a non-compete clause, do consider how you intend to answer such questions.

2⃣ Employers use cascading clauses at their own peril.

Here, the clause which employer sought to enforce essentially read:

"The employee is restrained for 12 months.
But if the Court thinks 12 months is too long, then the restraint is for 6 months.
But if the Court thinks 6 months is too long, then the restraint is for 3 months."

Such clauses as known as "cascading clauses". They may appear attractive to employers who wish to keep their options open.

But even before this case, the High Court had already indicated that such clauses leave employees uncertain as to the obligations owed until the issue is actually determined in Court,⁶ have an "in terrorem"⁷ effect on employees, and may be unenforceable.

I suggest that it is unwise for employers to rely on such clauses.⁸

If you're an employer, and you see such a clause in your existing employment agreements / templates, I suggest seeking legal advice now - and before a dispute arises.

3⃣ Employers underestimate employees at their own peril.

Perhaps the employer thought that it could quickly obtain ex parte injunctions⁹ against the employee, upon which the employee would quickly fold.

But as it turned out, the employee was able to engage Senior Counsel from a Big 4 firm to discharge the injunctions.¹⁰

The employer now has an expensive¹¹ battle on its hands.

If you're an employer, don't assume that enforcing a non-compete clause will be fast or cheap.