Restraint of Employees

Posted on Dec 16, 2020 by Terry Morgan   |   Categories: Employment Law

A recent decision in the Supreme Court of New South Wales in the matter of Plus One International Pty Ltd V Ching 2020 NSWSC 1593 highlights the need for an employment contract to be in writing should the employer wish to impose restraints upon an employee.


The Court confirmed the general rule that in absence of a written contract when the employment ceases, the employee is free to compete with the employer unless subject to a valid contractual restraint. The employee may take away and utilise the benefit of personal relationships built with particular customers of the former employer and may solicit any customer whom the employee can recall without the aid of a list taken from the former employer and without deliberate memorisation of a customer list.


However, the Court also confirmed that an employee may not use the employer’s confidential information for the use of or benefit of the employee whether to solicit business from the employer’s customers or to carry out work for such customers even if unsolicited.


In general terms, in order for an employer to claim for a breach of the use of confidential information of the employer, the employer must establish the specific confidential information that it is claimed the employee has used, that such information has the “necessary quality of confidentiality”, that the information was received by the employee in circumstances importing an obligational confidence and that there is an actual or threatened misuse of that information without consent.


The factors, as set out above, must be kept in mind when drafting employment agreements so that the information which is “confidential” is able to be identified from any employment contract as being confidential and that the employee is restrained from breaching that confidentiality.


As can also be accepted from the terms of the Court decision, the lack of a contractual restraint upon an employee enables the employee to use any customer relationships or information that he or she has retained in his or her memory regarding the business (other than confidential information) of the employer or of the customers of the employer.