14 September 2017

Can a four year restraint compute?

The Supreme Court of Victoria has restrained an IT specialist from being employed by a competitor for a period of four years.1

In June 2016, Mr Palmer sold his 40% stake in the first plaintiff, Southern Cross Computing Pty Ltd, to the second plaintiff, Ingenio Group Pty Ltd.

The agreement pursuant to which the shares were sold provided for payment of $3.5 million to an entity associated with Mr Palmer. As part of the agreement Mr Palmer, a worker with Southern Cross Computing since 2001, agreed to remain in the business as an employee and entered into restraints in favour of Southern Cross Computing.

At the time of the hearing, it was uncontested that Mr Palmer had been employed by a competitor of Southern Cross Computing, Blue Connections Pty Ltd, for several months. The central issue for Justice McDonald was therefore whether it was reasonable for Mr Palmer to be restrained from working for that competitor.

In considering the restraint, Justice McDonald concluded that the definition of ‘business’ was confined to the business of IT procurement and associated IT management services. In terms of the restraint’s geographical operation, while it was contested whether Southern Cross Computing undertook business activities throughout Australia, Justice McDonald held that when the geographic restraint is read with the definition of Business, the effect is to read down what otherwise might be a questionable aspect of that restraint.

In determining that the maximum four year restraint period was reasonable, Justice McDonald considered the following factors:

  • Mr Palmer’s lengthy service with Southern Cross Computing.
  • That the restraint was a term in an agreement freely entered into by Mr Palmer’s company.
  • The substantial amount of consideration paid by Southern Cross Computing in return for the terms of the agreement.

Finding the restraint was reasonable in all regards, Justice McDonald concluded that the plaintiffs were entitled to an order restraining Mr Palmer from having any involvement in Blue Connections until 28 June 2020.

Take away

While a Court would be unlikely to find a four year restraint against an employee to be reasonable, this is not the case for restraints given as part of a commercial transaction. In the latter scenario, Courts are far more likely to hold parties to their commercial agreement, particularly if a large sum of money has changed hands.

1Southern Cross Computer Systems Pty Ltd v Palmer (No 2) [2017] VSC 460.


Melinda Woledge

Marketing & Communications Manager

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