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December 2021

Post-employment restraints must be reasonable to be enforceable

Post-employment restraints must be reasonable to be enforceable

The Case

Shire Real Estate Pty Limited (SRE) v Kersten (2021)

Shire Real Estate Pty Ltd (SRE) terminated the employment of Mr Kersten, the general manager of its Illawarra office, for reasons of redundancy. Mr Kersten then obtained a position with another real estate agency, Di Jones Real Estate (Di Jones), in the Illawarra area. Five of Mr Kersten’s direct reports resigned and were thereafter employed by Di Jones.

SRE commenced proceedings in the Supreme Court of NSW, seeking an injunction against Mr Kersten and the other five employees from working for Di Jones.

Undertakings were provided by Mr Kersten and the other five employees to:

  • destroy any confidential information in their respective possessions; and
  • not solicit customers of SRE for the respective restraint periods (which differed among the employees from 3 to 9 months).

Given this, the Court was only required to determine whether the non-compete restraint was enforceable.

The non-compete restraint purported to stop the employees from working for a competitor defined as “any business engaged in providing real estate agency services” within a specified distance from the SRE office in Wollongong. For some employees, this was within a radius of 7.5 kilometres and for others it was 15 kilometres. The timeframe for the restraint varied between 3 and 9 months.

The Verdict

The NSW Supreme Court ultimately did not grant an injunction, indicating that the restraints:

  • were unlikely to be able to be enforced as they were too broad and hence not reasonable;
  • sought to prevent the employees from performing any work for a competitor, not just engaging in competing activities;
  • sought to prevent the employees from holding any position with a competitor, not just a competing position;
  • lacked clarity as to the meaning of “providing real estate agency services” and could be construed as restraining the employees from working for another real estate business within the Wollongong area, even if the employees were based outside this area and the properties they dealt with were based outside this area; and
  • meant that the employees may suffer financial hardship if they were to be unemployed until final hearing.

Consideration also had to be given to the fact that Mr Kersten’s employment had ended at the initiative of SRE by way of redundancy and not through his choice.

The Lessons

For post-employment restraints to be enforceable, they must be reasonable in terms of:

  • the activities sought to be restrained;
  • the duration of the restraint; and
  • the geographical area of the restraint.

Post-employment restraints should be specifically drafted for each individual employee and be no broader than reasonably necessary to protect an employer’s legitimate business interests.

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