In the recent case of Label Manufacturers Australia Pty Ltd v Chatzopoulos [2022] NSWSC 1059 (Chatzopoulos), the NSW Supreme Court gave employers guidance on the reasonable scope of post-employment restraints on former employees. This assists employers in determining the reasonability of employment restraints.

Background Facts

Restrictive covenants, also known as post-employment restraints, are clauses in an employment contract that limit an employee’s ability to compete with their former employer after leaving their job.

Label Manufacturers Australia Pty Ltd (LMA) terminated the employment of its former CEO, Mr Chatzopoulos, and placed him on leave between June and December 2021. In May 2022, Mr Chatzopoulos sought to start work with a direct competitor of LMA. LMA brought proceedings to enforce post-employment restraints that prevented Mr Chatzopoulos from doing so. The court found that the restraints were too broad and did not protect a legitimate business interest. Instead, they operated to stop Mr Chatzopoulos from being able to perform a job once he left the company. The lack of drafting specific restraints meant that the restraints were unenforceable. In addition to not having the restraint clauses enforced, LMA was ordered to pay Mr Chatzopoulos’ legal fees.

Key Lessons for Employers and Employees:

  1. Employers should carefully consider the scope of post-employment restraints and ensure that they only apply to the extent necessary to protect their legitimate business interests.
  2. Employers should ensure that the duration of their post-employment restraints is no longer than necessary to protect their legitimate business interests.
  3. Employers should ensure that their post-employment restraints do not unreasonably limit the employee’s ability to work in their chosen field.
  4. Employers should take into account any periods of leave when determining the duration of post-employment restraints.

Conclusion:

The case of Chatzopoulos highlights the importance of drafting reasonable post-employment restraints that protect legitimate business interests. Employers should ensure that any variations in employment terms and post-employment restraints are communicated to employees in writing before they commence employment.

If you want to ensure that your business avoids any potential legal issues, do not hesitate to contact Morgan + English Commercial Lawyers. Our team of experienced employment law specialists can help you navigate the complexities of workplace legislation and provide you with practical solutions tailored to your business needs.

Get in touch with us today by contacting Daniel at daniel@morganenglish.com.au and take the first step towards safeguarding your business and your employees.

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