The Victorian Supreme Court has found a four year restraint period to be reasonable and enforceable against a former key employee of an IT company.
The Court has ordered the IT specialist to be restrained from working for a competitor business and soliciting other employees of Southern Cross to join his new employer for the entire four year restraint period until June 2020.
One of the key reasons behind the lengthy restraint being upheld was due to the fact that in June 2016 the IT specialist sold his 40% share in Southern Cross for $3.5 million as part of a share sale agreement.
In exchange for selling his shares, the IT specialist also agreed to remain with Southern Cross as an employee. However, whilst working for Southern Cross during the restraint, he also commenced employment with a competitor, Blue Connections Pty Ltd on a one day per week basis and $5000 per month in salary.
On the question as to whether the restraint was reasonable, Justice Michael McDonald emphasised the IT specialist had received a large amount of financial consideration in exchange for his entry into the restraint and stated “there is nothing exceptional in a four year restraint in the context of a goodwill case where the vendor received a substantial amount of consideration”.
Further, His Honour also relied on the fact the IT specialist continued to receive a salary from Southern Cross as an employee after the sale of his shares and therefore determined the four year restraint against the IT specialist was reasonable in the circumstances.
His Honour also concluded the meaning of ‘restricted business’ and ‘business’ under the share sale agreement’s definitions was confined to IT procurement and associated IT managed services. His Honour stated “a competing business will only be a restricted business if it is engaged in activities which are the same as those undertaken by Southern Cross as at 28 June 2016” which in this case covered the activities the IT specialist was undertaking with his new employer.
We note that this ruling had features beyond that of some actions concerning restraint in relation to those who have sold veterinary practices.
Restraint clauses for veterinarians
Veterinary buy/sell agreements should limit the period and distance of restraint as we note some excessive restraint clauses have not been enforceable. It is necessary to demonstrate actual financial damage to the purchaser of a practice if enforcing restraint. Restraint periods should commence from the day that employment in the formerly owned practice ceased. Restraint should not be confused with breach of an employee’s duty of care to an employer.