The recent decision by the Victorian Supreme Court of Appeal in Wallis Nominees (Computing) Pty Ltd v Pickett [2013] VSCA 24 has reaffirmed that the Supreme Court will be reluctant to enforce restraint of trade provisions against departing employees, unless it is satisfied that the particular restraint is reasonable, having regard to the relevant facts.

This decision was an appeal from a decision by Justice Sifris, who held that Pickett, an IT consultant with Wallis Nominees (DWS), should not be restrained from commencing employment with DWS’ client, and that the restraint clause in Pickett’s employment contract that prevented him from working for DWS’ clients for a 12 month period was unenforceable and against public policy. During the 12 months prior to his resignation from DWS, Pickett was seconded to the client by DWS.

The general principles regarding restraint of trade under Australian common law (including that a restraint of trade clause is prima facie void, and will only be justified if the restriction is reasonable by reference to the interests of the parties) were not in dispute in this appeal. Rather, the questions for the Court of Appeal were whether the primary judge erred in not finding that:

  1. DWS had a legitimate interest in restraining Pickett from working with DWS’ client;
  2. If such a legitimate interest existed, that the restraint of trade clause did more than was reasonably necessary to protect that interest in its duration or extent;
  3. If the restraint was not reasonable, that it was permissible to sever the unreasonable parts of the clause.

The Court of Appeal (with Justice Redlich delivering a separate, but similar decision to the majority), while finding that DWS had a legitimate interest to protect in restraining Pickett (given Pickett had been in a position to gain the trust and confidence of DWS’ client, whether he sought to do so deliberately or not), it was not satisfied that it was reasonable to restrain Pickett from working with DWS’ client.

The Court rejected the submission that the relationship between Pickett as an IT consultant and a client was analogous to the close relationship that exists between an accountant and his or her client (DWS having relied on such a decision in Birdanco Nominees Pty Ltd v Money [2012] VSCA 64), and that the restraint went too far in seeking to restrain Pickett from working for a broad range of clients.

In relation to whether the unreasonable parts of the restraint could be severed, the Court of Appeal held that this argument could not be made in circumstances where it had not been run before the primary judge, but that, in any case, it was not possible to sever the unreasonable parts of the clause, as it did not use ‘cascading’ clauses which would permit an unreasonable stand-alone restraint (such as a particular client, geographical area or duration) to be severed and the clause otherwise remain.

This decision provides a reminder that restraint clauses should include carefully drafted and detailed cascading restraints, including in New South Wales (despite the fact that the Restraint of Trade Act 1976 permits a Court to read down restraint clauses to the extent necessary to be enforceable).