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April 2019

Contractors can agree not to poach each other’s employees

Quantum Service and Logistics Pty Ltd v Schenker Australia Pty Ltd (2019)

The Supreme Court of NSW (SCNSW) recently granted an injunction preventing an employee from starting employment with another employer where his ex-employer and future employer had entered into a commercial contract that contained a clause preventing them from poaching each other’s staff.

The Case

Quantum Service and Logistics Pty Limited (Quantum) employed Mr Murugiah, who resigned to take up a position with Schenker Australia Pty Ltd (Schenker). Mr Murugiah, as part of his employment with Quantum, provided services to Schenker on a project for Fuji Xerox.

The Services Agreement between Schenker and Quantum provided:

13.13. Solicitation for Employment. The parties agree that neither party and their associated entities, sub-contractors or their employees will employ or approach for employment, the employees or ex-employees of the other party, during the term and until a minimum period of six (6) months following the termination of this agreement.

Mr Murugiah’s employment contract with Quantum did not contain a post-employment restraint preventing him from accepting employment with Schenker.

Quantum commenced proceedings in the Supreme Court of NSW (SCNSW) against Schenker, seeking to enforce clause 13.13. As part of those proceedings, Quantum sought an injunction restraining Schenker from employing Mr Murugiah until final hearing.

The Verdict

The SCNSW did not make a final ruling as to whether clause 13.13 was enforceable.

However, it did grant an interlocutory injunction to Quantum that restrained Schenker from employing Mr Murugiah. In doing so, the SCNSW held that:

  • Quantum had an interest in protecting its confidential information, which might support the use of clause 13.13;
  • while clause 13.13 may be invalid at common law, as it would apply to employees who had no access to
    Quantum’s confidential information as well as those who did, that invalidity may be saved by the application of
    the Restraints of Trade Act 1976 (NSW);
  • clause 13.13 had been inserted at Quantum’s request to protect Quantum from Schenker employing its ex-staff
    and gaining access to its confidential information, which would enable Schenker to bring the work it subcontracted to Quantum back in-house;
  • if Mr Murugiah was allowed to commence employment with Schenker, Quantum would find it difficult to prove Mr Murugiah had divulged its confidential information to Schenker; and
  • the granting of the injunction was contingent on Quantum implementing its offer to re-employ Mr Murugiah (on the same terms as previously applied to him), who as a result of the Court’s decision would not be able to work for Schenker.

The Lessons

While this case shows the preparedness of NSW courts to potentially enforce provisions in commercial contracts that prevent contractors poaching each other’s employees, it also highlights the importance of including post-employment restraints in employees’ contracts. Mr Murugiah’s employment contract with Quantum had no restrictions preventing him from being employed by Schenker. This is especially important in other states and territories in Australia that do not have the assistance of the Restraints of Trade Act 1976 (NSW) to save otherwise unenforceable clauses.

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