On 15 October 2021, the New South Wales Supreme Court handed down a decision in the case of NOVA Employment Ltd v Michelle Hira & Ors [2021] NSWSC 1337 (‘NOVA Employment’) on the extent to which employers may restrain their employees’ use of information acquired during their employment.
The Facts
In NOVA Employment the three defendants, Ms Hira, Ms Randell and Mr Kurbatoff-Hira, worked for NOVA, helping people with disabilities to find employment under the National Disability Insurance Scheme.[1] Between February and August 2021, each of the defendants left Nova to work at other disability recruitment agencies, performing tasks very similar to their roles at NOVA.[2]
While employed at NOVA, each Defendant signed a contract containing identical restraint clauses which stated, upon leaving their employment at NOVA they were not to:
- Solicit business from any clients;
- Engage in business that competed with Nova;
- Solicit or engage NOVA employees to leave; and
- Interfere with the relationship between Nova and their clients.
All three defendants gave undertakings to the Supreme Court during an interim hearing that they would not breach their restraint clauses and would not use or disclose any confidential information acquired during their employment to NOVA’s competitors and their new employers.
NOVA claimed these undertakings were not satisfactory and proceeded to seek an injunction to preclude their ex-employees from working with their new employers because of the confidential information those employees had access to during their employment at NOVA and the prospect that they may use this confidential information in their new roles.[3]
Can NOVA protect their confidential information?
The kind of confidential information that NOVA seeks to protect is the forms and processes they provided to their employees about how to carry out their duties, engage with employers and clients and secure work for clients.[4] For example, NOVA claim their employees were taught to instruct clients to use short resumes and that this skill is confidential information because it reflects NOVA’s specific approach.[5]
Justice Rein was not convinced that because the defendants accessed this information from time-to-time as part of their duties, they have acquired confidential information that NOVA is entitled to protect. Instead, this kind of information is ‘office know-how’, concerned with how NOVA works and is not confidential information that can be protected by a restraint clause.[6]
NOVA claimed that the purpose of their restraint clause was to protect their investment in securing, training and supporting its employees.[7] Justice Rein rejected this argument, holding it only supports the fact that the restraint is intended to protect information that is confidential.
Ultimately, employers need to distinguish office know-how from actual confidential information, as general know-how is not protected by the law even if it is imparted under a relationship that seems confidential, such as employer-employee. The knowledge, skill, talent and experience gained from an employment relationship is distinguishable from confidential information and trade secrets.
When will an injunction be granted to restrict ex-employees from working for competitors?
An employer can seek an interim injunction from the court to prevent their ex-employee from working with a competitor where damages are insufficient to compensate them for the harm caused by breaching the restraint clause.
Courts are careful when granting these kinds of injunctions as they prevent employee’s from earning an income, so must balance the interests of the employer in protecting their confidential information with the interests of the employee.
In NOVA, the Court declined to grant the employer’s injunction, giving the following reasons:[8]
- The employees had already worked for their new employer for 2-months, so an injunction would have very little impact;
- The employees gave undertakings that they would not solicit clients or interfere with any client relationships;
- The employees were not high-level managers and did not earn a lot; and
- The employees worked in disability services, which is a socially beneficial industry.
In light of these factors, an interim injunction restraining the employees would have been unreasonable and ineffective to legitimately protect NOVA’s interests.
[1] Nova Employment Ltd v Michelle Hira & Ors [2021] NSWSC 1337 (‘Nova Employment’), [1] (Rein J).
[2] Ibid, [2].
[3] Ibid, [21].
[4] Ibid, [21].
[5] Ibid, [22].
[6] Ibid, [23]-[24].
[7] Ibid, [25].
[8] Ibid, [28].
