Post Employment Obligations - Part 3

Posted on 19 November 2013

In part two (2) of our blog on post employment obligations we analysed the case of HRX Holdings Pty Limited v Pearson and discussed how the Court determines whether a post employment restraint is reasonable and enforceable at law.

In our third and final blog on post employment obligations we review two (2) recent cases and identify instances where post employment obligations, even when deemed reasonable by the Court, will not be enforceable due to an employer's improper conduct and repudiation of contract.

Repudiation of contract and employer's improper conduct

A post employment restriction provision will only be enforceable if the employment contract that still governs the relationship between the employer and former employee is not breached at the time the employment was terminated. In the recent case of Fishlock v The Campaign Palace Pty Limited the NSW Supreme Court found that where a former employee can demonstrate that their duties were changed significantly by the employer without obtaining the employee's agreement prior to a termination that the contract of employment had been repudiated by the employer and therefore all clauses within the contract became inoperative.

The Fishlock case involved an Executive who had always had creative responsibility over the Melbourne and Sydney offices as well as supervision of other staff. In 2011, Mr Fishlock was informed his role would be dramatically reduced and would no longer include creative responsibility for Melbourne and Sydney offices.
The Court found that The Campaign Palace's treatment of Mr Fishlock amounted to a repudiation of the contract awarding Mr Fishlock damages in the sum of $268,259. Furthermore, the Court reviewed the post contractual restraint in the contract of employment which would have restrained Mr Fishlock from:

  • soliciting clients or employees of The Campaign Palace; and
  • conducting business of a similar type for one year after his employment ended.

The Court asserted that, had The Campaign Palace not dramatically changed Mr Pearson's role and repudiated his contract of employment, the restraint would have been reasonable in the circumstances and would have been enforceable. However, because the Court had already found that The Campaign Palace had repudiated the contract, they could not rely on the restraint clause because was now unenforceable.

Another recent case relating to the unenforceability of post employment restraints is Northern Tablelands Insurance Brokers Pty Limited v Howell where Mr Howell was made redundant without being given the required written notice of termination. Justice Barrett stated that by acting outside the contractual provisions concerning the termination, and dismissing Mr Howell by way of immediate redundancy, Northern Tablelands brought the employment to an end by breach of contract and wrongful dismissal. There was a repudiation of the contract of employment by Northern Tablelands. On the day of termination the contract was repudiated and, therefore, any post employment obligations were inoperative from that time on.

Lessons to be learned

Both the Fishlock and Northern Tableland cases illustrate the need for employers to terminate employees in accordance with the contract of employment. Employers will risk being unable to enforce post employment restraints were they have breached the terms of the contract or even workplace policies and been found to have repudiated the contract. In contrast, and encouragingly, where employees have been unfairly dismissed they may be able to rely on the contractual breach to assert that a repudiation of the employment contract has occurred and that any post contractual obligation is unenforceable.

If you would like further advice on your post employment obligations and whether they will be likely to be deemed reasonable and enforceable by the Court please contact us.