Legal battle to protect trade secrets successful

Stevedore DP World Australia (‘the Plaintiff’) has won a recent legal battle to protect trade secrets after the Supreme Court of NSW upheld a restraint of trade provision the Plaintiff imposed on a former employee. The Plaintiff’s former terminal manager Bruce Guy (‘the Defendant’) was ordered to serve out a three month garden leave period as well as a separate three-month restraint period before joining rival firm Asciano.

The Defendant argued that the three month garden leave period should count towards the restraint period, contending that the Plaintiff would effectively have a six month restraint of trade period that exceeded the three month restraint provision in his employment contract. The Defendant also submitted that the restraint period should begin immediately after termination, arguing that this provision was enacted after he gave notice that he accepted a job with Asciano and was subsequently placed on garden leave.

Justice White, however, did not agree that placing the Defendant on garden leave constituted a termination of employment.

The garden leave provision in the employment contract required the defendant to remain contactable and available for work by the company telephone whilst still being paid. Accordingly, the Court recognised that the restraint period did not start until the garden leave period had been served out.

In determining the reasonableness of the restraint, the Court found that the Defendant’s extensive knowledge of the plaintiff’s: expansion plans, revenues, earnings and profit margins, represented “confidential information and trade secrets.” Justice White acknowledged that the Plaintiff could potentially suffer “irreparable harm” if it’s confidential information which the Defendant obtained during the course of his employment was disclosed to benefit rival firm Asciano. Despite the Defendant’s contention that he had “no independent recollection” of confidential information, Justice White found that the “extended restraint period was reasonable” given the confidential nature of the information that the defendant was privy to.

Whilst restraint clauses should not go so far as to prevent competition in a market, they act as an important protection of confidential information. Justice White acknowledged that the case was heavily weighted towards the Plaintiff as he would be at a “risk of doing an injustice” if he ruled in the Defendant’s favour.

Swift and diligent legal action is necessary to successfully enforce restraint periods. If you are seeking more assistance with restraint of trade clauses in employment contracts please contact Nick Stevens, Megan Cant or Jane Murray.

Published September 2016

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