Restraint of Trade: HRX Holdings Pty Ltd v Pearson [2012] FCA 161

When valuable senior employees resign, carrying with them all their accumulated knowledge and experience with the company, employers may find themselves caught between a rock and a hard place. How best to protect the company’s interests is a vital question which arises.

When valuable senior employees resign, carrying with them all their accumulated knowledge and experience with the company, employers may find themselves caught between a rock and a hard place. How best to protect the company’s interests is a vital question which arises.

The answer lies in the drafting of clear and unambiguous contracts. Contractually speaking, one is bound to what they have signed and when individuals try to claim exemption from their obligations, the law must intervene. In the recently handed down decision, HRX Holdings Pty Ltd v Pearson [2012] FCA 161 (1 March 2012), Brent Pearson, the co-founder and ‘rain-maker’ of HRX, has been successfully restrained from engaging in competition for two years after his resignation. Pearson, the ‘face of the company’, had intimate interests in the clientele and contacts of the company, and core knowledge and experience in the management of HRX business strategies. With this in mind, he purported to resign from HRX and take up a Senior Executive position at Talent2, a direct competitor of HRX, contrary to his contractual obligations.

Pearson was unusually involved in the negotiations of his employment contract, however he agreed to a 2 year restraint period, preventing him from accepting employment or engaging in a business ‘similar to or competitive with’ HRX. In light of this restraint, he received significant remuneration by way of his HRX shares representing 8% of the company shares. One may ask, ‘Aren’t restraint of trade clauses void prima facie?’     Whilst this remains true, the Restraint of Trade Act 1976 (NSW) provides for the preservation of reasonable restraints that are not against public policy. This way, the legitimate interests of the employer may be protected. Such interests usually fall into the following three categories: customer connections, staff connection and knowledge of confidential information. One can only imagine the detrimental repercussions of a senior and beloved employee resigning, taking with them loyal colleagues and clients, and confidential information on the inner mechanisms of the company.

Thus, it is vital for employers to effectively ‘tie down’ their valued senior employees in clearly worded and well-defined contracts, in order to prevent such ethically and morally questionable behaviour, which may in turn have fatal implications for the company.

* PCC Lawyers are a team of employment practitioners based in Sydney, with many years of combined knowledge and experience in workplace law, industrial relations, workplace investigations and training.  They provide a high standard of excellence and an exceptional level of personal service to a variety of clients in the Sydney metropolitan area, Central Coast, regional NSW and interstate.

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