When a valued employee leaves, it can be a difficult time for a business. As if to rub salt in the wound, sometimes the same employee surfaces in a rival organisation or starts a business in direct competition. As the realisation sinks in that this person knows some or all of your business methods, practices and even secrets, all of a sudden you’re calling your lawyer to demand immediate legal action.

Unfortunately, this is often the wrong time to ask a lawyer to take action to restrain unlawful competition by a former employee. It can be too late. Most of the necessary action should have been taken before the former employee was recruited. That is, much will depend on the employment contract, organisational policies and procedures and related HR documents being in place before and enforced during the time the (now) ex-employee worked for you.

7 propositions for effective restraint of former employees

What follows is Seven Propositions regarding the duties of ex-employees, as generalised from the decided cases and law in Australia regarding use of confidential information.

1.      In the absence of a valid restraint of trade clause, a former employer cannot prevent a former employee simply from competing.

2.      A former employer cannot normally therefore in such circumstances prevent a former employee from contacting or even soliciting clients or customers of the former employer (but note proposition no. 3).

3.      An employee may not, however, use confidential information obtained in the course of that employment for the purpose of competing with a former employer, or indeed in any other way detrimental to the former employer's interests.

4.      What amounts to confidential information for this purpose is not susceptible to abstract definition. It will depend on the facts of each instance or case.

5.      There is now a clear trend of authority (ie court case decisions) to the effect that whether one classifies customer or client lists as confidential or not, a departing employee may not take them for the purpose of using them in a competing role.

6.      Neither may a departing employee deliberately memorise the information in such lists for that purpose.

7.      Whether the departing employee takes customer lists or not, generally the departing employee may not solicit or approach a client of a former employer in respect of a transaction current at the time of the departing employee's departure.

Examples of Restraint of Trade Enforcement

Need help? Talk to us today about putting in place measures to protect your business from the wandering eye of your employees. We have a range of solutions that can be customised to suit the needs of businesses both large and small.

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Case References:

1  Aussie Home Loans v X Inc Services [2005] NSWSC 285

2 Cactus Imaging Pty Limited v Glenn Peters [2006] NSWSC 717

3 Woolworths Ltd v Banks [2007] NSW SC 45 (24 January 2007)