A recent case in the Supreme Court of Victoria – Court of Appeal has found an employer may not enforce post-employment restraints if they repudiated the contract and the employee accepted this repudiation.
In a recent case, Crowe Horwath (Aust) Pty Ltd v Loone, the Victorian Court of Appeal upheld the decision that a restraint of trade clause is unenforceable when the employer repudiates the contract and the employee accepts this repudiation.
In this case, Mr Loone was employed by Crowe Horwath pursuant to a contract, which identified his role as “Managing Principal” at the Launceston office. The contract contained a restraint of trade clause and a remuneration made up of a Base Salary, superannuation and discretionary bonuses.
In 2015, Crowe Horwath finalised the acquisition of Davey Financial Group and incorporated their business into the Launceston office. Crowe Horwath believed this would contribute $200,000, at a minimum, to the Launceston bonus pool.
Prior to 1 July 2016, it was alleged Crowe Horwath was not planning on taking into account the Davey Financial Group acquisition when determining the Launceston bonus pool. Further, the company decided to defer payment of bonuses. Mr Loone believed this was a repudiation of the contract, as, while bonuses were discretionary, there was nothing in the contract allowing the company to withhold bonuses. Mr Loone claimed this was the “final straw” that finalised his decision to leave the company.
He subsequently started his own boutique advisory firm in Launceston and Crowe Horwath claimed this breached the restraint of trade clause and sought an interlocutory injunction in July 2016.
Mr Loone claimed the restraint was not enforceable because Crowe Horwath had repudiated the contract by not assessing his bonus entitlements pursuant to the requirements in his contract and by withholding a proportion of the bonus.
Crowe Horwath maintained the clause was enforceable and survived “termination of the employment in all circumstances, and for any reason”.
The Court of Appeal upheld the decision at first instance that a post-employment restraint of trade clause was not enforceable if the contract ended due to the employer’s breach or repudiation.
The Court of Appeal noted there was no Australian authority for upholding a restraint of trade clause where an employer repudiated the contract and the employee accepted this repudiation. Further, international authorities were in agreement with Australian authorities and showed a consistent trend of denying an employer the benefit of post-employment restraints where the employer repudiated the contract.
Key issues for employers
This case clearly demonstrates that where an employer repudiates a contract and an employee’s contract ends for this reason, employers will not be able to enforce any post-employment restraints contained within the contract.
It is therefore necessary for employers to adhere to their obligations in employment contracts if they wish to enforce these restraints.