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Employment Contracts and Restraints Essay

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Restraint of trade is a contractual term which seeks to curtail the extent of a party to prosecute in concern. ‘Under the common jurisprudence philosophy of restraint of trade, any undue limitation on a individual ‘s capacity to prosecute in trade will be treated as shut-in, even if the limitation has been freely accepted. ‘ [ 1 ] In Woolworths Ltd v Olson [ 2004 ] NSWCA 372, the issue of rational belongings and confidential information were prevailing. The ‘validity of post-employment non-competition clauses was examined along with the broadest type of restraint which imposed a committedness non to vie with the employer, or work for a rival.

‘ [ 2 ] In conformity with Newton, the Court of Appeal distinguished the ‘differences between the consideration of restraints of trade from a common jurisprudence position or from the position of the Act. ‘ ( 2004, para 5 ) [ 3 ]

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At the applicable clip, Mr Olson was an employee at Woolworths and in 2003 became a important member of a squad for a package undertaking, “ Project Mercury ” to ‘transform the supermarket ‘s supply concatenation processs.

‘ Newton notes that on 2 July 2004, following employment dialogues with Franklins ( one of Woolworths ‘ cardinal rivals in the supermarket industry ) , Mr Olson emailed extremely confidential and valuable Project Mercury paperss to his married woman ‘s computing machine. On 5 July 2004, Mr Olson gave notice of his surrender to Woolworths, to take consequence from 2 August 2004. Two yearss subsequently, he signed a contract of employment with Franklins ( 2004, Para 4 ) . [ 4 ] Subsequently, Woolworths was informed of these electronic mails and Mr Olson was dismissed on 12 July 2004 for ‘breaching his contractual and fiducial responsibilities in relation to confidential information. ‘ [ 5 ]

Harmonizing to clause 10 of Mr Olson ‘s employment contract, Woolworths had the option to restrict Mr Olson from being employed or involved in a “competitive concern in Australia and New Zealand for a period non transcending 12 months” [ 6 ] in add-on to the ‘restraint payment ‘ to Mr Olson given by Woolworths.


The cardinal issue in Woolworths Ltd v Olson [ 2004 ] NSWCA 372 was whether a restraint of trade was sensible and hence enforceable.

Ratio Decidendi:

The Court of Appeal nem con overturned Justice Einstein ‘s decision sing the restraint clause, and ‘granted Woolworths the injunction it sought to implement the restraint against Mr Olson. ‘ [ 7 ] It was argued that Einstein J had employed the ‘common jurisprudence restraint of trade rules to clause 10 ‘ without reflecting on the procedure of subdivision 4 of the Restraints of Trade Act 1976 ( NSW ) ( Act ) . The Court deduced that the injunction required by Woolworths was in harmoniousness with the clause and non dissimilar to public policy. Crucial facets included that:

‘the injunction sought to protect Woolworths ‘ legitimate and decently protectable involvements ( notably the confidential and valuable Project Mercury information ) , and

the restraint did non forestall Mr Olson from gaining a life, given the “restraint payment” to be made to him in regard of the period of the restraint. ‘ [ 8 ]

Mr Olson ‘s argued that the restraint clause was null for uncertainness because Woolworths had discretion as to whether the clause would use. The Court rejected the statement and noted that many valid contractual clauses were capable to the execution of the ‘discretion or some farther action of the parties, and this clause was no different. ‘ It was finally ordered that Mr Olson be restrained from being connected or ‘concerned ‘ with any cardinal rivals of Woolworths Ltd within Australia until 12 January 2005.

Critical Analysis:

‘Under the common jurisprudence, a restraint on an employee is invalid on public policy evidences unless it goes no further than is necessary to protect the legitimate involvements of the employer, the employee and the populace. In New South Wales, the common jurisprudence has been modified by the Restraints of Trade Act 1976 ( The Act ) . ‘ [ 9 ] The purpose of restraint of trade clauses in the instance of commercial contracts is to protect a ‘proprietary involvement ‘ and it merely becomes enforceable when it is deemed sensible. No 1 is entitled to be sheltered against sheer competition.

To set up whether a restraint is bona fide in New South Wales, the Supreme Court must:

determine whether the alleged breach ( independent of any public policy considerations ) does or will conflict the footings of the restraint ; and

if it does, find whether the restraint, to the extent that it relates to that alleged breach, is against public policy, that is, it goes further than is necessary to protect the legitimate involvements of the employer, the employee and the populace. ‘ [ 10 ] No 1 is entitled to be protected against mere competition nevertheless, a tribunal will implement a restraint that is sensible with the purpose to protect confidential information.

Basically, the Court made two momentous comments about subdivision 4 of the Restraints of Trade Act. ‘First, that its operation is non limited by common jurisprudence rules refering the rupture from contracts of unreasonable restraints of trade clauses. Second, that the subdivision allows the Court to disregard that a restraint goes beyond what is sensible, provided the restraint is one that is able to be enforced to an extent that is sensible. ‘ [ 11 ]

The Court of Appeal came to a decision that the restraint required to be imposed was a rightful precaution of Woolworths ‘ trade secrets and was non unfair in either its range or continuance, particularly given the payment made by Woolworths to Mr Olsen comparable to Mr Olsen ‘s wage for the period of the restraint. It besides held the restraint was non against public policy. Harmonizing to Clayton Utz ‘s Collins, the instance shows how earnestly the tribunals take rational belongings, with costs being awarded in the Court of Appeal against Olson on an “indemnity” footing.

However, one can reason whether the Court would hold enforced the restraint without the status necessitating the executive to be paid an sum equal to his ordinary wage during the period of the restraint. ‘It is improbable that the Court would hold enforced the restraint, whether using the Act or the common jurisprudence, if the executive did non hold extremely confidential information which he appeared to mean to utilize to Woolworths ‘ hurt ( in a future New South Wales instance, Woolworths v Banks, the Court found that the employee did non mean to utilize confidential information to the hurt of Woolworths and dismissed the interim application consequently ) . ‘ [ 12 ]

Additionally, the legality of a restraint will be based upon whether it transgresses public policy ( though under New South Wales jurisprudence, the issue of public policy transpires after the find of a breach of the restraint and is limited to the breach found and non the restraint ) . It is important to observe that public policy will be offended if the restraint fails to impartially equilibrate the echt involvements of the employer, employee and the populace. Therefore, it was right concluded in the instance of Woolworth ‘s V Olsen that it was justifiable to keep an employee from accepting employment with a rival to guard confidential information, specifically where Mr Olson had suggested that he anticipated to use that information against Woolworths ‘ involvements. More so, he was ‘compensated during the period of the restraint. ‘ [ 13 ] Accordingly, restraint of trade was sensible and therefore enforceable.


This determination emphasises employers ‘ authorization to keep ‘post-employment activities ‘ [ 14 ] of executive staff and high spots the good operation of the Restraints of Trade Act 1986 ( NSW ) for future commercial deductions. To continue the rationality of the restraint, the Court of Appeal placed significant prominence on the “ restraint payment ” made to Mr Olson by Woolworths. This insinuates that single payments to an employee moving as ‘specific consideration for post-employment limitations will help the chances of such a restraint being sensible and hence enforceable. ‘ [ 15 ] Furthermore, this instance acted as a case in point for future instances, viz. Smith V Nomad Modular Building Pty Ltd [ 2007 ] WASCA 169, where the Supreme Court of Western Australia ‘upheld an entreaty against a determination to allow an injunction to an employer to implement a post-employment restraint clause. The restraint aimed to forestall the former employee, Mr Smith, from working for a rival for six months after his employment ‘ [ 16 ]


The ‘underlying rule is that for a restraint clause to be enforceable it must be sensible ‘ [ 17 ] in all the fortunes. Injunctions for breaches of such clauses may be approved if the employer can turn out that they have a ‘legal right which has been infringed, that the breach of that right can non be adequately compensated by an award of amendss and that the balance of convenience favours the granting of the injunction. ‘ [ 18 ] The Majority ‘s logical thinking is expected to promote commercial confidence in issues sing the enforceability of restraints of trade.

Cite this Employment Contracts and Restraints Essay

Employment Contracts and Restraints Essay. (2018, Apr 11). Retrieved from https://graduateway.com/employment-contracts-and-restraints/

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