01/03/2011

In October 2010 the New South Wales Court of Appeal held that a cascading post-employment restraint of trade clause was valid and not void for uncertainty.

The decision in Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267 involved the court examining a post-employment restraint of trade clause in an employment agreement for an insurance broker who had been employed for 19 years. 

One of the 5 claims by the former employee was that his restraint was void for uncertainty as it contained cascading clauses for both the duration of the restraint and the geographical area and it was therefore void for uncertainty.

In essence, the restraint included:

“To reasonably protect the goodwill and legitimate business interest of the Company, during the Restraint Period and within the Restraint Area (referred to below), you will not…..

(a)    …….
(b)    Canvass, solicit or deal with, or counsel, procure or assist another person to canvass, solicit or deal with any client of the Company with whom you have had dealings during the two year period prior to your employment ending……
Restraint Period means…..
(a)    15 months,
(b)    13 months,
(c)    12 months.
Restraint Area means:
(a)    Australia;
(b)    The State or Territory in which you are employed….
(c)    The metropolitan area of the capital city….
……
Each restraint contained in this Deed…..constitutes a separate and independent provision, severable form other restraints….”

The Court considered whether the cascading effect of the clause was uncertain because the clause contained no mechanism for the selection of which clause was to operate.  It was argued by the former employee that “the contracting party [the former employee] could not know from the terms of the contract, what the operative obligation was”.

The Court rejected the argument on two bases:

1. the effect of the clause was there were nine restraints ranging from the widest of 15 months Australia-wide to the narrowest of 12 months Sydney metropolitan area and each combination was binding on the parties; and
2. each of the combinations being binding on the parties there is no operation or principle of law concerned with certainty of contract that requires a mechanism or hierarchy of order.

The Court held that the clause was not uncertain and that in this case, the period of 12 months and Australia-wide was the reasonable restraint to be enforced.

If you have any questions in regard to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.