In a pivotal ruling that resonates across professional services and in particular the recruitment industry, the Western Australian Supreme Court shed light on the complexities of contractual compliance in the case of Marble Group Services Pty Ltd v Blenkinsop [2023] WASC 464 (6 December 2023) – Marble Recruitment versus Fetch Recruitment.
This case, focussed on accusations of a breached non-compete agreement by a former employee, and has emerged as a crucial benchmark for understanding the legalities surrounding key employment contract clauses:
- Confidentiality;
- Restraint of Trade;
- Intellectual Property; and
- Non Compete.
Marble vs Fetch – Recruitment Company vs Recruitment Company
A court has determined that a company might have evaded legal action if it had acknowledged correspondence regarding a new hire allegedly violating his prior employer’s confidentiality and non-compete contractual post employment obligations.
Marble Recruitment, a firm specialising in construction and mining, urgently sought to restrain a former key recruitment consultant and his new employer, Fetch Recruitment, while awaiting a verdict on accusations that the consultant had infringed upon his employment contract and misused Marble’s information.
Western Australian Supreme Court Justice, Michael Lundberg stated that despite Marble’s delayed request for preliminary injunction after learning of the consultant’s possible infractions, there were “significant issues for trial” concerning many of its allegations.
The consultant commenced work with Marble in late 2020 with a contract that comprised clauses for confidentiality, non-solicitation, and non-competition. The non-solicitation and non-competition clauses stipulated staggered restrictions, otherwise known as cascading clauses, of nine, six, and three months, with the former encompassing a 100km radius around Perth and the latter applying statewide, narrowing down to Perth.
After resigning in July and starting with Fetch on 8 August, concerns arose at Marble regarding the consultant’s contact with its clients and use of confidential data for recruitment in the construction and building industry.
The Employee’s Post Employment Behaviour
Evidence was presented of emails sent by the consultant in September to two clients, indicating his new role at Fetch and willingness to update them on candidates. Importantly Marble also accused the consultant of sending emails to “dummy” addresses in its database, suggesting a need for updated details to find suitable roles. This also lead to accusations around how this information was accessed in the first place by the consultant.
Letter of Demand
Despite Marble’s letters to the consultant and Fetch, no response was received. A subsequent letter in October only led to a request for an extension from Fetch.
Justice Lundberg criticised the lack of response from the consultant and Fetch, noting that Marble’s letter to Fetch was tactful and intended to make Fetch aware of the issue, potentially averting litigation or the need for urgent judicial intervention.
Was there A Breach?
The Court considered whether the consultant breached his contract’s confidentiality clause, violated the Corporations Act by using the information for personal or Fetch’s gain, or caused harm to Marble. There was also a question of Fetch’s awareness of the consultant’s obligations and its involvement in the alleged breach.
Justice Lundberg acknowledged challenges in establishing the validity of Marble’s restraint clauses but saw a serious issue for trial regarding their enforceability for up to six months or more, designed to safeguard Marble’s legitimate interests.
In assessing the balance of interests, Justice Lundberg acknowledged Marble’s delayed action but noted its attempts to seek legal advice and resolution. He emphasised the risk of irreversible harm to Marble if the consultant and Fetch remained unrestricted.
Restraint of Trade – Successful
Therefore, he ordered the following:
- The consultant to refrain from soliciting Marble’s clients within 100km of Perth,
- Offering recruitment services in the commercial building sector in the State for Fetch, and
- Using or disclosing Marble’s confidential information.
- Fetch was similarly ordered to not use or disclose any information received from the consultant that included non-public details about Marble’s candidates, clients, and customers.
Employers – What Should You Do if A Former Employee Acts in The Same Way As The Case Above
With the constant movement of employees, this type of scenario is not overly surprising. An employee leaving for a competitor and blatantly using confidential information to poach clients and use confidential information which has a significant financial impact on their former employer.
What Should Be Done? 4 Tips for Employers
#1 Identify When A ‘Restraint of Trade’ Clause is Necessary.
Naturally, employers don’t want their former employees setting up shop next door in direct competition of the business. In our experience, the threat of a current or potential employee becoming direct competition doesn’t always cross an employer’s mind until it is too late.
Therefore, our first tip on restraint of trade is for employers to consider each of their employees (prospective or current) and ask themselves, what damage could be caused to the business if the employee was to resign tomorrow and directly compete?
If the answer includes any damage potentially sustained by the business, then a restraint of trade clause should be considered.
#2 Draft Restraint of Trade Clauses to Protect your Business
What is needed to adequately protect your business in the situation of restraint clauses in employment relationships? Traditionally, the courts are reluctant to enforce a restraint of trade. Restraint of trade provisions must be ‘reasonable’ and provide an employer with no more than adequate protection for the business. As a rule of thumb, restraint of trade clauses should be drafted as narrow in scope as possible to give an employer the best chance of being able to rely on it. There are various restrictions an employer may want to impose on their employee to protect their business.
Here are a few examples:
- to contact suppliers of the business;
- Restricting an employee’s ability to own or operate a competing business;
- Restricting an employee’s ability of seeking employment with a competing business
How restraint of trade clauses operate
In seeking to be as ‘reasonable’ as possible, employers should consider what actions could the employee take that would cause damage to the business and limit the restraint clause to those possible scenarios.
#3 Cascading Restraint
Because of the uncertainty about what the court might consider reasonable, employers should consider a “cascading” restraint clause. A cascading restraint clause means that the restraints are drafted in several tiers. This type of drafting provides separate combinations of geographic areas, restraint periods, and covenants. The benefit to such clauses is that where one tier is unenforceable, the next tier may be considered reasonable. This means that although some combinations of areas, restraints and covenants may be unreasonable, there are ‘back up’ restrictions that can be relied upon.
#4 Seek Legal Advice
As our first 3 tips have highlighted, restraint of trade provisions is difficult to enforce if they are not carefully drafted. Restraint of trade provisions must be drafted on a case by case basis to be ‘reasonable’ and provide an employer with no more than adequate protection for the business.
Further, if you do need to enforce it, or at the very least prepare correspondence to the former employee and new employer – you need to act quickly. In the case of Marble they were successful with an injunction even if there was a delay. You may not get that luxury. Act quickly and seek legal advice as soon as able.
If you had access to Lawyers At Your Call you will be able to get this advice quickly and set up for an urgent injunction if need, be to protect the business.
At NB Employment Law (formerly NB Lawyers), our employment lawyers Brisbane team offers an obligation-free consultation to deal with these types of matters – for employment law advice call us on +61 (07) 3876 5111 to arrange a consultation to discuss your inquiries and we will do our best to provide a helpful, practical solution
Written By
Director
About the Author
Jonathan Mamaril , Australia’s trusted and leading employment lawyer with over a decade of experience.
Jonathan leads a team of handpicked experts in the area of employment law who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability. With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers.
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