Is Your Business at Risk?
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When employees leave your business, there is a potential risk that they may take your key clients, confidential information and intellectual property with them. To prevent this occurring, restraints are used to prohibit or discourage employees from removing, copying, using or disclosing confidential information and from soliciting customers, suppliers and other employees. However, in order to be effective the restraint must be reasonable. When and under what circumstances will a restraint be found to be unreasonable? The following case provides guidance on this issue.
AMP Services Ltd (”AMP”) operated a financial planning business as a subsidiary known as AWM. The defendant, a senior adviser, was one of several employees who left AWM to work for a competitor. AWM sought to recover a substantial amount of alleged lost revenue from the former employee, claiming that she had breached the post-employment restraint in her employment contract. The contract restricted the employee for a period of 12 months following termination or resignation, from approaching, enticing away or soliciting any of AMP’s clients or employees. AWM claimed the former employee improperly encouraged a group of employees to leave the company by putting them in contact with people at the competitor company.
The Federal Court found that although the former employee did not induce other employees to move companies, she did facilitate the move to some degree. Prior to leaving, the employee contacted most of her clients informing them of her departure, and most of those clients followed her to the competitor company. AWM alleged that by engaging in this conduct, she acted in breach of the restraint. The Court however, found the restraint to be unreasonable and void due to the fact that it was wider than necessary, covering all AMP clients, many of whom did not have any connection with the employee. AWM could not rely on the restraint in the employee’s employment contract because she had gone to work for a competitor of AWM and the restraint only referred to competitors of AMP.
This case highlights the importance of drafting accurate restraint clauses, by ensuring they reflect the relevant company the employee works for and the particular clients they are in contact with in order to guarantee these restraints will be enforceable and provide sufficient protection.
AMP Services Ltd v Manning [2006] FCA 256 (March 24, 2006)
