Employment Law – Background

An ex-employee’s post-termination restraints have been deemed unenforceable by the Supreme Court of Victoria. This case highlights the impact of employer’s actions on the validity of a contract of employment. Furthermore, it highlights the limits of post-employment restraints in employment law. The failure to remunerate an employee can result in a constructive dismissal. Consequently, post-employment restraints may become ineffective.

Post-employment restraints are inserted in contracts of employment to prevent an employee working elsewhere. In addition, it prevents the ex-employee from engaging with former clients for a period of time.

Employment Law – Facts

In essence:

  • the employee was engaged as the managing principal of the employer’s Launceston office
  • the employer refused to pay bonuses to the employee from late 2015 to July 2016. However, such bonuses were guaranteed in the employee’s contract of employment
  • the employee argued that the failure to pay the bonuses was a breach of the contract of employment
  • the employee then accepted the breach as a repudiation of contract. Furthermore, this was confirmed by an additional breach by the employer
  • the employer sought to enforce the restraint clause in the contract of employment. This would have prevented the employee from soliciting clients he had direct dealings with in the final 12 months of his employment. Furthermore, he was restrained from engaging in any similar business activity within a certain geographical area for the same period of time

Employment Law – Decision

The Supreme Court held:

  • the post-employment restraints were reasonable. However, the validity of the contract was the fundamental question because of the employer’s breaches
  • the employer’s refusal to pay the bonuses was a repudiatory breach. It was cited from another case: “Where… an employer unilaterally reduces his employee’s pay, or diminishes the value of his salary package, the entire foundation of the contract of employment is undermined”
  • the employee did not act quickly to repudiate the contract after the first breach. However, he acted after the initial breach was confirmed by an additional breach. As a result, this was held to be sufficient
  • that even if the post-employment restraints were valid, the court would have found against the employer

The decision is available for you to read at:

Crowe Horwath (Aust) Pty Ltd v L [2017] VSC 163 (4 April 2017)

Employment Law – Tips for Employers

Our Matthews Folbigg Workplace Solutions employment law team recommends employers:

  • review this employment law decision
  • seek the assistance of an employment lawyer to understand the impacts of this decision
  • engage an employment lawyer to draft contracts of employment with post-employment restraints
  • ensure compliance with employment contracts and employment law policies
  • fairly, consistently and lawfully respond to breaches of employment contracts and employment law policies

Employment Law – More Information

Please call the leading employment lawyers in Parramatta, the Matthews Folbigg Workplace Solutions employment law team on 9635-7966 to speak with one of our employment lawyers.