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Keeping post-employment restraints intact

Keeping post-employment restraints intact

Enforcing a post-employment restraint can be extremely complex – and expensive! Matthew Robinson provides tips to help members through the process and maximise their chances of success.

REEF's template employment contract contains robust terms offering very sound post-employment protections. However, words on paper are not enough on their own to protect your business.

There are a number of important actions you can take to dramatically increase or decrease your chances of restraining an ex-employee from trying to unfairly and inappropriately gain a competitive advantage over your business.

 

Choose your restraints carefully

REEF’s template contracts contain a number of clauses that restrain various post-employment activities, including not working for a competing business (Non-Compete Restraint), not soliciting your clients (Non-Solicit Restraint), not poaching your staff (Non-Poach Restraint) and also not updating social media profiles to broadcast the details of any new employer (Social Media Restraint).

It is important that you carefully consider your business interests and what restraints should be included in any contract for a new staff  member. It is not uncommon for some agencies to include exactly the same restraints in the contracts for their receptionist, junior property managers, senior sales staff and management. Doing this can act against you in a number of ways. In some instances, particularly for your junior staff members, it will look like overkill and is unlikely ever to be enforceable by a court. This puts you in a difficult position when they want to move on to work in the agency down the road. You’re in a position where you either:

  • Let the staff member leave and “explain away” why you’re not enforcing the restraint clause. The rest of your staff hear the message clearly: “The boss doesn’t care about our non-competition restraints.”;  or
  • You have to ramp up expensive legal action against the staff member (with potentially little prospect of legal success) just to teach them a lesson.

For your junior staff (who have not yet built their profile or who aren’t seen as the face of your brand) consider whether you truly need to include a Non-Compete Restraint in their employment contract? It may be more effective to protect your sales and property management assets with junior staff through Non-Solicit and Social Media Restraints.

In adopting this strategy, you may wish to consider restricting the use of the Non-Compete Restraint (in addition to all the other restraint clauses) to your more experienced sales team members and members of your senior management group.

 

Consider carefully what you say on termination

Just as the words in the post-employment restraint clauses have been carefully chosen, it is equally important that you choose your words carefully when you speak to an employee who is exiting the business.

When a key member of staff resigns it can cause a visceral reaction in some managers. Tempers can be frayed and actions can be heated. In contrast, other managers can be open, supportive and wish the employee their best wishes for their new role.

In either situation, the way in which the termination meeting was handled has fundamentally damaged the prospects of enforcing some or all of the post- employment restraints.

When managing the exit of any employee who has post- employment obligations, it is important that your business acts consistently with its rights. Avoid off-the-cuff remarks about your restraint rights. Develop the discipline not to commit to any post-employment restraint position until you’ve re-read the employee’s contract and considered all the circumstances of their departure.

It is particularly important for all the members of the management team to have a clear and consistent approach. In several instances we’ve seen a senior manager sending positive and good luck messages to a departing sales representative (who’s going to work for a competitor down the road) at the same time another senior manager is attempting to ramp up the enforcement of the Non-Compete Restraint. The first manager has significantly damaged the prospects of the Non-Compete Restraint being enforced.

 

Act consistently

Post-employment restraints are said to be legal rights/obligations between the employer and the ex-employee. However, in reality, how you have treated your other staff, who have left and had similar post-employment restraints, can strongly influence your ability to enforce your rights.

These post-employment restraints are designed to protect your business’ interests. Where you exercise your post-employment rights inconsistently, you are essentially sending a message to your staff (who may resign at some point in the future) that your suggested “business interests” are not really that valuable.

Why could Bob take some of his landlord clients, but Sally can’t? Why was Kylie, the former CEO, allowed to go to work for a direct competitor but 12 months later Brian, the highest selling sales consultant, can’t go and work with Kylie? These are powerful arguments that undercut your ability to enforce your restraints. Your decision to act inconsistently with your contractual rights might be fine for Kylie (a poor performer and you are glad to see her go to a competitor!), but can come back to haunt you at a later stage.

Due to the risks associated with acting inconsistently with your rights, it is important that any decision to waive your rights is carefully considered. Perhaps consider any waiver as part of a settlement agreement with the departing employee, so that you can later differentiate the departure and non-enforcement (due to resolving a broader dispute) from the departure of your high selling sales consultant.

 

Act quickly and don’t wait

A consistent problem for employers looking to “do something” about a post-employment restraint issue is delay.

If you become aware that an ex- employee may be in breach of their restraints, it is important that you act quickly. While you may not ultimately want to go to court to obtain an injunction, if you delay taking action to address the problem then you are more likely than not completely ruling this out as an option (even if you discover far worse misconduct later). You have also sent a message to the ex-employee that they have a green light to continue with their breaches.

If you become aware of any post- employment breach, it is strongly recommended that you take steps within seven days. You don’t need to head straight to court (and expensive litigation). The common approach is to write to the ex-employee and require that they urgently agree to “cease and desist”, and provide an undertaking to comply with their post-employment obligations. In most instances this is sufficient action to make the ex-employee back down. If they refuse, then you need to decide whether you want to enter a negotiation with them or commence legal action to seek an injunction to restrain their future conduct.

If you cannot successfully resolve the situation within two weeks of becoming aware of the breach(es), and you haven’t commenced proceedings seeking an interlocutory injunction during this time, then it is unlikely that you would be able to obtain an injunction due to the issue of delay.

It’s a case of if you snooze, you lose. The Equity Division of the NSW Supreme Court have a rule of thumb that unless you’re before the court within 14 days (or thereabouts) seeking an injunction, then don’t bother coming later unless you’ve got a good excuse.

 

Don’t withhold the termination pay

The last tip is to ensure that you uphold your contractual obligations and/or not engage in negative behaviour such as a smear campaign.

The common mistake many businesses make is withholding the termination pay or statutory entitlements of any ex-employee who has (or is suspected to have) breached their post-employment restraints. Not only is this a breach of the Fair Work Act 2009, it presents a potential gift to the ex-employee to be able to lawfully walk away from any post-employment restraints.

Where you fail to abide by your clear obligations under the contract, it presents a significant risk that your post-employment rights will be unenforceable. Why should a Court seek to enforce your rights under a contract you have refused to comply with?

If the failure to pay the employee is significant, it is open to the employee to argue that your conduct is a fundamental breach of the contract to the extent that you have essentially ripped up the contract. This has the effect of you also ripping up all your business protections, such as post-employment restraints and the non-disclosure of various forms of confidential information.


By Matthew Robinson

Matthew Robinson is Partner at FCB Workplace Law and an Accredited Specialist in Employment & Industrial Law with The Law Society of NSW. FCB Workplace Law regularly advises and acts for real estate agencies in post-employment disputes and litigation. He can be contacted at mnr@fcbgroup.com.au.

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