28/04/2009

In late February 2009 the Court of Appeal handed down its decision in Miles v Genesys Wealth Advisers Limited, finding that a restraint of trade of 2½ years on a former MD was not unreasonable…..

 

The recent decision of the Court of Appeal in Miles v Genesys Wealth Advisers Limited [2009] NSWCA 25 is of particular interest to the financial planning and accounting sectors in that it provides guidelines for dealing with a former employee who seeks to entice business from the former employer’s Member Firms and the length of restraint that may be enforced.

 

The brief background of the case is as follows:

-  Mr Miles was employed as the Managing Director of Genesys until 30 March 2007;

-  Miles and Genesys executed a Deed of Release prior to the termination of employment whereby Miles was restrained from contracting with Genesys clients and competing with Genesys until 15 September 2009, in consideration for receiving certain benefits;

-  Post termination Miles took up employment with a Genesys Member firm which was permitted by the Deed; and

-  In about March 2008, Miles left the Member Firm and planned to go into a new business venture which would compete directly with Genesys and he planned to approach Member Firms of Genesys to entice them away to the new business venture.

 

During cross examination in court, Miles admitted that “in competing with Genesys in the new business, he would have a head start over others who had no knowledge of Genesys’ business”.

 

Two of the issues considered by the Court of Appeal were:

 

1.  Did the restraint on “customers’ and “clients” apply to Member Firms of Genesys? and

2.  Is a 2½ year restraint reasonable in the circumstances?

 

Restraint extends to contact with Member Firms

 

The Court held that the restraint on Genesys clients included a prohibition against contracting or soliciting business from Genesys Member Firms.  Hodgson JA held that:

 

“the words used plainly manifested an intention that the class identified by the words “Genesys Wealth Adviser’s Client with whom you dealt or to whom you provided services” would extend to some entity with whom Mr Miles dealt or to whom he provided services; and this could be so only if the words extended to Member Firms.”

 

Reasonableness of the Restraint

 
The Court also held that the 2½ year restraint period was reasonable in balancing the interests to be protected.  Hodgson JA held that:

 

“the relationship shown to exist between Mr Miles and the Member Firms and their principals could properly be regarded as being, to a substantial extent, the property of Genesys…. Having regard to the length and quality of the connection maintained on behalf of Genesys, a judgment that a restraint of 30 months was appropriate to protect the employer’s legitimate interests would not in my opinion be an unreasonable one.”

 

The important lesson for employers is to have a restraint drafted as wide as is reasonable in the circumstances so that if it is tested, a court will enforce the agreed terms.  From an employee’s point of view it is important to seek advice on the obligations that are being proposed in the restraint.

 
For more information contact Townsends Business & Corporate Lawyers on (02) 8296 6222