Posts in Category: Smart Company

Proceed with caution when dealing with difficult employees

The Federal Court of Australia has signalled the importance of careful consideration before action by employers who have difficulty with union representatives.

In one of the first significant decisions since the High Court of Australia decision in Bendigo Regional Institute of TAFE v Barclay,the Court has made clear that employers still need to justify why their action is strictly behaviour related and not related to industrial activity or union membership.

In the Barclay case, the High Court overturned a previous decision of the Federal Court which, in brief, would have made it difficult for an employer to take any legitimate disciplinary action against a union delegate.

The High Court reverted to a position closer to the previous understanding of the law; that if an employer could satisfy the court that the union membership or industrial activity was not the “substantial or operative factor” influencing a decision to take adverse action, then it may be able to establish that the adverse action was not for unlawful reasons.

In AMWU v McCain Foods , the Federal Court took a novel approach to resolving a dispute not dissimilar to circumstances in the Bendigo TAFE case. It is important to note that the decision is interlocutory at this stage and the findings of the court are preliminary until a final hearing.

McCain terminated the employment of a union delegate which it said had engaged in bullying behaviour against a manager of the company. The company relied on a report commissioned by it as part of an investigation into a complaint by the manager and a similar complaint by the employee against the manager. The allegations against the employee included that he:

  • “Uses foul language”;
  • “Constantly talks over me”;
  • “Berates me personally”;
  • “Makes accusations about my behaviours”; and
  • “Stands over me and leans into me when I am sitting in my desk to intimidate me and try to control me”.

All of the conduct complained of occurred at meetings which dealt with industrial matters.

Justice Bromberg found that, for interlocutory purposes, that the suggestion that the employee was dismissed because he was a union delegate was weak. He did, however, find that McCain’s task in showing it did not act for a prohibited reason:

“May well be difficult where a distinction is sought to be drawn, as in this case, between industrial activity and what is said to be the inappropriate behaviour which accompanied it. To the extent that the behaviour formed a legitimate part of the activity, there is a basis for contending that the adverse action was actuated (at least in part) by the industrial activity.

“On the facts of this case, it is strongly arguable that an association existed between the industrial activity in which [the union delegate] engaged and the adverse action taken to dismiss him. The question will then be whether such an association was an operative factor in McCain’s decision to take adverse action.”

The novelty in the court’s approach lay in the practical outcome of the case. Until a final hearing can be held, the court held that the delegate should be re-instated, but only after he agreed to comply with a “Workplace Behaviour Protocol” (which appears at the end of the decision) in relation to his duties as a union delegate.

The short lesson for employers is that while the High Court decision in Barclay restores some balance to an employer’s ability to deal appropriately with the poor conduct or behaviour of employees, regardless of their union membership or activity, it remains fundamental that the employer must show that its reasons for taking adverse action against the employee were not in any way motivated by an unlawful reason.


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

Dealing with union visits

Two of the most common questions raised by employers have been addressed by separate decisions of the Federal Court and Fair Work Australia.

Union right of entry

A large number of employers, particularly those who do not have a strong union presence, regularly face the question of what to do when a union representative requests access to the worksite under the Fair Work Act’s “right of entry” provisions. Unions have a right to enter the premises for three main reasons: First, to conduct discussions with employees; second, to investigate a suspected breach of the Act or of an award or enterprise agreement; and, third, to investigate occupational health and safety concerns.

Disputes often arise about where it is appropriate for the union representative to meet employees. The unions commonly prefer areas such as lunch rooms, where employees congregate. Employee and employers sometimes see this as invasive of employees’ personal time and seek to have meetings occur elsewhere on the employer’s premises.

The issue which often becomes the subject of dispute is the employer’s entitlement under the Act to “reasonably” require that the union representatives meet with employees in a specific location, or that they take a particular route to get to that location. In AMEIU v Somerville Retail Services the Full Federal Court determined that it was reasonable for the employer to require such meetings to take place in a training room rather than the lunch room. The union argued that the employer’s choice of room was unreasonable because it was close to where management of the company were seated and because it was possible for management to monitor who went in and out of the training room. They also claimed that the room was too small to accommodate a large group of employees. Fair Work Australia had previously agreed that the company’s approach was reasonable; noting that employees did not have to walk past management and that privacy blinds could be drawn in the training room.

Citing case law going back to 1572, Justice Flick (with whom the other judges agreed), said that the occupiers right to quiet enjoyment of their property should only be compromised to the extent necessary to accommodate the statutory right of entry provisions. The fact that the company and the union did not agree on what a reasonable location was, did not mean that the company’s position was unreasonable.

The case is potentially significant, as it appears to give employers a much broader capacity than previous case law to dictate the location of meetings held by union representatives under the right of entry provisions under the Fair Work Act.

Majority support for bargaining

After the union has exercised its rights of entry and spoken with employees, the next question which employers commonly ask is whether they are obliged to negotiate a collective agreement at the request of the union.

In cases where employers are reluctant, one of the methods available to the union to require employers to engage in bargaining – though not to agree to any particular proposal – is to obtain a majority support determination under the Fair Work Act. In order to obtain such a determination the union must satisfy Fair Work Australia that a majority of employees want to bargain collectively.  CFMEU v Xstrata Ulan was an example of a typical case of this kind. The union had obtained a petition of employees, with 47 out of 54 employees signing the document, indicating a desire to bargain collectively with the employer.

The employer argued that a majority support determination should not be made because it had organised a secret ballot to be conducted by the Australian Electoral Commission to determine the attitude of the employees. FWA determined that the petition was sufficient evidence that the majority of employees wanted to bargain and that there was not requirement under the law for a secret ballot to be held. Commissioner Roberts of FWA determined that unless there was evidence that the employees’ signatures were not genuine. In other cases, FWA has been prepared to await the result of a ballot if it appears that signatures may have been obtained by misleading employees about the effect of the petition.

The majority support determination provisions are important, because they provide a gateway to a union and employer having access to a range of bargaining tools, including good faith bargaining orders. The decision in the Xstrata case highlights that the bar to gain access to significant statutory weapons is very low.


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

Why employers can’t tolerate victimisation

Employers need to take care to ensure that employees and managers are aware of their obligations under Equal Opportunity, Work Health and Safety, and Fair Work laws to ensure workers are not disadvantaged because they have rights or characteristics protected by that legislation.

Equally importantly, the message that it is unacceptable to victimise anyone who makes a complaint needs to be sent loud and clear.

A range of recent cases in different jurisdictions illustrate why the concept has such a broad reach and the consequences for employers who fail to heed the warnings.

In the first case, the NSW Administrative Decisions tribunal ordered an employer to implement an equal opportunity program, conducted by lawyers from a large law firm, after it found that managers within the company had mocked an employee who had made complaints about race, carers and disability discrimination. It is perhaps ironic that the employee received damages of $5000, but the compliance program is likely to cost the employer much more than that.

In a separate unfair dismissal case, Fair Work Australia found that it was unfair to terminate an employee because he had helped another former employee with an unfair dismissal case against the employer. The employer was ordered to pay $50,000 compensation to the employee.

The Federal Magistrates Court found that an employer who had terminated an employee’s employment because she had taken two days of sick leave was in breach of the Fair Work Act “adverse action” provisions. The company persisted through trial in attempting to justify the termination on the grounds of misconduct, as a result of which the employee incurred significantly greater legal costs. The employer was fined $20,000 and ordered to pay the employee nearly $40,000 in compensation and nearly $60,000 in legal costs because of its “unreasonable” conduct of the case.

In a separate decision the Federal Magistrates Court found an employer had breached the “adverse action” provisions when it terminated the employment of an employee who had made a formal complaint about underpayment of wages. A penalty is yet to be determined in the case.

The decisions highlight the importance of employers impressing on managers and other employees that they need to be aware of the substantive rights of employees arising from legislation designed to be beneficial and protective. 

In some cases the relevant laws place an onus on the employer to show that the reason that action was taken against an employee was not because of a complaint. It’s a tough test to pass. Retaliating because someone has elected to exercise those rights is in some cases worse than the primary conduct alleged, and the case examples discussed show that it can be costly.


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

Media boss flags trend away from traditional litigation

Reports that former Financial Review boss Michael Gill is suing his former employer for breaches of anti-discrimination laws reflect a growing trend away from the limitations of suing for breach of contract.

Employees – or at least their lawyers – are becoming increasingly creative with the use of human rights legislation to press claims arising from termination of employment. This includes the adverse action provisions of the Fair Work Act. The most obvious reason for the trend is that no opportunity is lost for the aggrieved party. The mechanism for making claims takes them to the Federal Court or the Federal Magistrates’ Court, both of which have the jurisdiction to hear breach of contract claims as well. So, rather than limit themselves to simple contract claims in State courts, the field opens up to develop Human Rights jurisprudence.

Gill’s case is interesting. He is claiming discrimination on the basis of his age in Fairfax’s failure to appoint him to the CEO role now occupied by Greg Hywood, and for terminating his employment. According to reports in The Australian newspaper, Gill claims, among other things, that he was told he had been in the position too long and that, as a result, age was a factor in his termination.

There is an interesting dilemma for businesses looking to refresh management. Gill’s term in the top job at Financial Review was 12 years – by any measure it is a long time in any position. Without commenting on Gill’s case, which would be inappropriate, one could well imagine a board looking to bring in fresh ideas after that length of time. Indeed, some might argue it is the responsibility of the board to consider it.

But SMEs might be frightened off by the prospect that the injection of different – not necessarily “young”, “fresh” or “new” – energy, ideas and thoughts might lead to expensive litigation. As is the case with Fair Work Act “general protection” claims, another opportunity is opened, which lawyers will exploit.

Putting a fence around legislation of this type to ensure that it protects the disadvantaged people in our community that it was intended to protect, and isn’t a tool for the wealthy to exploit in not an easy exercise. The old unfair contract jurisdiction in NSW was a prime example. But it is something that the legislature needs to seriously consider.


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

Industrial relations issues to watch out for in 2012

The Federal Government would like to have you believe that it will be all smooth sailing on the industrial relations front for 2012. But there are some things that the Government and, in particular, the new Minister Bill Shorten, will have to work hard to sell as good for the economy. SMEs might find that the workplace environment gets a little tougher this year.

Fair Work Act review

Plenty of commentators have already flagged that no one should expect too much from this review. The cynics would say, in classic “Yes Minister” style, that the result of this review is already known. Expect to see some minor tinkering with unfair dismissals, hopefully starting with the failed Small Business Fair Dismissal Code. Don’t expect the number of unfair dismissal claims to go down, however. The boom numbers reported by Fair Work Australia will continue.

Industrial action and dispute resolution

The amount of industrial action – both protected and unprotected – will increase in 2012. A number of enterprise bargains completed before the Fair Work Act came into effect in 2009 will be up for renegotiation this year. Unions have been honing their strategies to best exploit good faith bargaining rules and the use of industrial action without too much pain to their members. Only shock tactics by employers, such as we saw with Qantas last year, will prevent industrial torture by a thousand bans, or stoppages. Add to that the prospect that the Fair Work Review may result in good faith bargaining focusing more on substantive than procedural outcomes.

The biggest question may yet be, “Are we heading for a return to arbitration of most disputes?” This would flag a major setback for enterprise bargaining, and for small and medium employers.

Adverse action

Regardless of what the High Court does in the Bendigo TAFE case, “general protections”, or “adverse action” claims will continue to increase. Try this for size: an employee has 60 days to file a claim compared to 14 for an unfair dismissal; the employer has to prove it did not take any adverse action against the employee for a prescribed reason; “adverse action” includes such amorphous concepts as “altering the employee’s position to the employee’s prejudice”.

Some aspects of this industrial legislation go back 80 or 90 years, and were designed to protect employee’s entitlements to award wages and their right to take part in union activity.

Unfortunately, that legislation has been bastardised to such an extent that just about anyone with a gripe against their boss – and there must be a few of those – can devise a claim, which at least forces employers to think about paying “go away money”; the same go away money that the government promised business it would rid the system of.

Occupational health and safety

Employers need to be aware of the staged implementation of the national Work Health and Safety legislation. Not all states have adopted the legislation immediately, so you need to remain observant of different regimes in different states. South Australia, Tasmania, Victoria and Western Australia will retain their own systems for the time being, with the national model legislation being operative in NSW, Queensland, ACT and NT from January 1, 2012.

Information about employers’ obligations

As has been extensively reported on SmartCompany and elsewhere, there is still a long way to go before the Government or any of its authorities, such as the Fair Work Ombudsman, can claim success in educating employers about minimum employee entitlements.

The FWO should be praised for indicating that employers who go to the trouble of getting advice will receive some consideration in the event that they are nevertheless in breach of the law. It remains to be seen how this will work in practice. Employers still need a definitive source of advice and information which they can rely on to protect themselves against prosecutions.

Related Items :


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

Court forces directors to quit new job over restraint

The New South Wales Supreme Court has acceded to an employer’s request that two former employees should be forced to resign from directorships of their new employer. The case demonstrates the broad powers which Courts may exercise to effect what it considers as a just outcome.

In Red Bull Australia Pty Ltd v Stacey, the Court was asked by Red Bull to restrain a former general manager and marketing manager from any involvement in a company which was a potential competitor in the energy drinks market. Both had become directors of the Australian company, Calidris, which was a subsidiary of a Singapore company and had been engaged in starting off the Calidris business in Australia. Red Bull sought the orders on the basis of post employment restraints which had been included in the employees’ contracts of employment.

The Court agreed with Red Bull’s argument that the only effective remedy to ensure the integrity of the restraint obligations was to force the former employees to resign as directors and to have no involvement with the business of Calidris until the end of their restraint periods.

Although the decision is only an interlocutory decision, with a full trial to follow, the case is interesting for a number of reasons:

  • The Court was prepared to grant an injunction even though the restraint period was due to expire shortly. The Court decided that the employees could recover lost salary from Red Bull if they were ultimately successful in defending the case at trial;
  • The employees had offered the Court a range of comprehensive undertakings that they would remove themselves from involvement in the business, but these were rejected by Red Bull.  They argued, and the Court agreed, that their positions as directors of Calidris meant they would be in a position where they would be unable to meet their directors duties if the restraint was enforced;
  • The Court accepted the preliminary evidence that Caldiris was unlikely to be a major competitor of Red Bull;
  • Both of the employees had been terminated by Red Bull and there appeared to be no suggestion that they had been planning to enter a competitive business while still employed by Red Bull. The injunction application wasn’t made until almost 12 months after the employees were given notice of termination;
  • The employee and Red Bull had signed a deed of release which arguably overrode the restraints in the contract of employment.

The lessons for employers are:

  • Restraints of trade can work, but bear in mind that both sides will be spending a lot of money on lawyers. The return for Red Bull may or may not ultimately be worthwhile if Caldiris is indeed only a small competitor;
  • Courts have a broad discretion to “mould” orders to suit a particular situation and the order that employees resign as directors is a little unusual;
  • If you enter a release agreement with employees, make it crystal clear what obligations will be ongoing.

This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

High Court to clarify adverse action law

The High Court of Australia will hear an important appeal on the meaning of the adverse action provisions of the Fair Work Act. It will be the first time that the new provisions have been tested in the highest court.

Bendigo TAFE appealed against a decision of the Full Court of the Federal Court of Australia, which found that the TAFE had taken adverse action against an employee. The employee was a union delegate who used his employer’s email system to distribute an email advising employees that he had been informed that employees were being asked by management to falsify documentation relating to an accreditation audit process. The TAFE suspended the employee on the grounds that he should have reported the alleged misconduct to management before publishing the allegation in the workplace and that his email damaged the reputation of the employer.

Mr Barclay took action against the TAFE, saying that the suspension constituted adverse action for the prohibited reason that he was engaging in union related activity. The TAFE before a single judge of the Court and Mr Barclay appealed. The effect of the finding of the Full Court was that employers face enormous difficulty in distinguishing the actions of an employee in his or her capacity as an employee and those actions which are undertaken in the capacity of a union official.

The key departure from previous case law in this area was that the Full Court said that it was not enough for the management of the TAFE to give evidence that they were taking action for breach of the employer’s policy and that they did not act not for reasons relating to the employee’s union activity. The objective circumstances of the case will determine whether or not the employer acted for an improper reason, even if the Court accepts that the intent of the manager was not to act for a prohibited reason. The Full Court said that the wording in the Fair Work Act was broader than previous legislation with similar provisions.

This approach leaves employers potentially facing an almost impossible task in defending adverse action claims.  In effect, the reasons given for an employer’s action will always be coloured by the surrounding facts.  The surrounding facts in a dispute of this nature, taken at face value, will almost always suggest that it is possible that a prohibited reason was activating the decision of the employer.  The onus on the employer to prove that they did not act for a prohibited reason, if they cannot rely on evidence of actual intent, becomes almost impossible to discharge.

The High Court will be asked to rule that an adverse action claim can be successfully resisted if the employer gives evidence, which is accepted by a court, that the employee acted for an “innocent” reason and not a proscribed reason.

Employer groups have recently joined the chorus for reform of the Fair Work Act including the adverse action provisions. Even if the High Court finds in favour of the employer in Barclay’s case, it is likely that the recent rise in adverse action claims, particularly as an easy alternative to unfair dismissal claims, will continue. From the perspective of small and medium employers, legislative reform remains a must. In the meantime, employers should ensure that that are hyper alert to the prohibited reasons for taking adverse action. Adverse action can include concepts as broad as “altering the position” of the employee to his or her prejudice. If you are planning to take any step which might adversely affect an employee who has industrial responsibilities, or who has or may be considering some form of complaint: document your reasons for doing so clearly before acting; consider what the real reasons for your intended actions are; if you are satisfied that your motivation is legitimate, for instance because of the employee’s misconduct, get advice anyway. It could save you time and money in the long run.


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

Are you monitoring your employees’ social media use?

Fair Work Australia has confirmed that sacking an employee for comments made on social media websites can be justified in appropriate circumstances.

Deputy President Swan of FWA decided in O’Keefe v Troy Williams’ Good Guys that the employee’s use of Facebook to post abusive comments about a manager at his workplace was related closely enough to his work because “the separation between home and work is now less pronounced than it once used to be.”

The decision is potentially an important one because even though the employee had posted the comments on his home computer and out of work time, the Tribunal found that it constituted a breach of the employer’s policy requiring employees’ conduct to be “courteous and polite” and not to use “offensive language, resort to personal abuse or threaten or engage in physical contact.” The employer also had policies against sexual harassment and bullying.

The employee had posted the comments following complaints to the operations manager of his employer that his pay had not been correctly calculated or paid. The employee admitted that the comment that “f..king work still haven’t managed to f..king pay me correctly. C..ts are going down tomorrow” was directed at the female operations manager. FWA agreed with the employer’s argument that fellow employees, who were the employee’s “friends” on Facebook, could read the comments. Even though the employer wasn’t named, the employee had blocked the operations manager’s access to the comments and was fully aware that other employees could view the comments.

As a result, Deputy President Swan found that the employee’s behaviour was as serious as if it had taken place in the workplace itself. The conduct in posting the comments was therefore serious misconduct, and a serious breach of the employee’s contract of employment.

The decision can be contrasted against other cases in which an employee’s excessive use of social media during work time could justify termination. It also contrasts with the case of Fitzgerald v Escape Hair Design in which FWA found that the employee’s comments would not be seen by many people and would not be damaging to the employer’s business.

O’Keefe’s case is an example of applying well established principals to modern technology. Conduct outside of work hours, and outside the workplace can still constitute a valid reason for termination. Furthermore conduct or comments which are targeted against workmates might be capable of constituting a breach of the employer’s policies which justifies termination, even if there is not necessarily any harm suffered by the workmate.

The case also demonstrates that the line between work and personal life is increasingly narrowed: employers need to be alert to the fact that social media can be more than harmless fun. As the employer apparently feared in O’Keefe, the potential for an employee’s comments to lead to more serious consequences, such as a claim of sexual harassment by a workmate, is very real. Employers should ensure that they have clear policies which cover extreme antisocial use of social media.


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

Termination for theft: still okay

Just when some employers were starting to wonder about unfair dismissal claims, two recent FWA cases confirm that, when handled correctly, termination for fraud or theft is still a valid reason.

For SMEs the cases demonstrate how learning from the practices of larger employers in these cases can make dealing with termination a little easier.

In Barton and others v General Motors Holden and Zoumas v TNT Express, Fair Work Australia upheld the dismissal of employees for behaviour of this kind.

What employers have to prove

Usually unfair dismissal cases are decided on the “balance of probabilities” – that is, what the Tribunal members consider is more likely to have occurred after hearing all of the evidence. In cases involving theft or fraud, the employer must also show that there is some precision in the evidence gathered and that some weight is given to the fact that in a criminal proceeding, there is a presumption of innocence.

This does not mean that an employer needs to prove that the theft or frauds occurred “beyond reasonable doubt”, which is the standard applied in criminal cases.

Investigation procedures

GMH used photographic evidence of an alleged stockpile of car parts to assist in supporting allegations that the employees were involved in “smuggling” the parts out of the employers testing site at Lang Lang, Victoria. They also showed evidence of a concealed draw in the floor of a van, which was owned by a contractor to GMH, who also happened to be the son of one of the employees terminated. The employees were questioned extensively in the presence of a union representative.

Although the Tribunal found that some aspects of the investigation could have been handled more fairly, for instance putting the allegations to the employees in writing, it found that the employees were not denied procedural fairness as they understood the allegations and had a proper opportunity to respond to them.

TNT installed a second location tracking device in a vehicle driven by the employee in order to show that he had used an electronic device to block the signal of the primary tracker in the vehicle. He would then claim overtime for periods when the signal was blocked, when in fact he was at home. The case demonstrates that the use of surveillance equipment can be entirely legitimate and the evidence is admissible in unfair dismissal proceedings. It is critical that employers comply with relevant workplace surveillance laws, which are different in each State. In NSW it is generally more difficult to conduct covert surveillance lawfully than in other states. Employers should get advice before using video, GPS or other forms of surveillance. TNT also obtained the evidence of an electronics expert to verify that the device used by the employee was in fact a signal-blocking device.

Grounds of termination

In each case, the employer tried to limit the allegations of misconduct to those matters which they felt they could prove. Many employers make the mistake of drawing inferences from an employee’s behaviour, which are not supported by the facts and risk tainting an otherwise legitimate basis for termination of employment. In GMH, an allegation that the employee has stolen some tools and equipment was quickly withdrawn when it couldn’t be clearly linked to the parts stockpile.

In both the GMH and TNT cases the employees were found to have lied during interviews conducted during the investigations. This dishonesty was found to constitute sufficient grounds for summary termination quite aside from the substantial allegations. Often theft or fraud can be difficult to prove, even to the “balance of probabilities” standard. It is important that employers make clear at the outset of an investigation that employees are expected to answer all questions honestly. This obligation ties back to a common law duty of the employee. In the event that there is insufficient evidence to terminate for theft or fraud, an employee’s dishonesty during the investigation may provide stand alone grounds for termination for serious misconduct.

If you are in doubt about whether you have grounds for termination or whether your investigative and interview procedures are fair, get advice.


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.

What employers can learn from Seven and Ten’s fight for James Warburton

It’s hard to believe that barely three weeks ago, media and public interest in the case of James Warburton, the “defecting” television executive was as high as you are likely to see for any event where seven or eight barristers engage in dry legal argument with a Supreme Court Judge.

Even though Warburton’s immediate future has now been determined by the Court and the publicity has waned, the case contains some valuable lessons for employers who are seeking to protect their confidential information and other business interests and to prevent key executives joining market competitors.

A quick recap of the background: Warburton was employed by Channel Seven as a senior executive and the putative successor to CEO David Leckie. When it became clear that Leckie was not going anywhere any time soon, Ten offered Warburton a job. He signed a contract with Ten and the whole mess wound up in the New South Wales Supreme Court, with Seven arguing that Warburton was prevented by his contract from joining Ten until October 2012, 19 months after signing on.

In the end, Seven succeeded in having Warburton, in the words of the Judge in the case “sidelined” until the end of 2011. But was it really a victory? And what can employers learn from the case?

Gardening leave is okay
The Court reinforced the established legal principle that it is perfectly legitimate for an employer to direct an employee to perform no duties at all, except in very limited categories of cases where the ongoing performance of work is critical to the maintenance of the employee’s trade. As an example, those cases often involve showbiz people, who rely on their image to continue to obtain work.

It was important that the contract of employment did not require Seven to give Warburton any work.

Post employment restraints can be entered into at any time
In this case, the restraints of trade on which Seven’s success was based were contained in a “Management Equity Participation” agreement, which was signed by Warburton prior to him entering his last contract of employment with Seven.

The equity benefits made available to Warburton were powerful consideration for his agreement to restrain himself from future competition.

Restraints do not need to be in an employment contract
The Judge found that the fact that the restraints were contained in the MEP deed and not the employment contract didn’t make them any less enforceable. The restrictions protected the investment of Seven’s owners, encouraged the Seven management group to stay together, and discouraged the devaluation of the business by executives with valuable confidential information and customer connections leaving the business.

This was a sufficient and legitimate financial interest which could be protected by post employment restraints.

Courts will enforce a freely entered restraint which is reasonable
Warburton had argued that the period of the restraint – 12 months – was unreasonable. The court said otherwise. Warburton had taken extensive legal advice and well understood the commercial purposes of the restraint. Furthermore, 12 months was seen as a period during which it could reasonably be anticipated that Warburton’s knowledge of Seven’s business, and confidential information, would remain current.

These considerations are critical for employers considering implementing restraints of trade. There has to be a demonstrable and reasonable interest to protect and the period of the restraint has to be no more than is adequate to achieve that objective.

No double dipping to extend restraint period
Seven had argued that Warburton should see out his contract, until October 2011 and after that, be subjected to the 12 months restraint. Seven was prepared to pay Warburton his full salary and benefits until October 2011, even though they expected he would continue to follow the direction not to perform any work.

This aspect of Seven’s case broke down. The judge said that for the purpose of interpreting the restraint the cessation of Warburton’s employment should be the date he was directed by Seven to leave its premises, not the date that his contract may technically have come to an end.

This shows that the courts will not be prepared to allow employers to attempt to extend the effective period of a restraint by sending an employee on gardening leave, where that would be unreasonable. The Judge decided on the evidence that, by January 2011, Warburton’s knowledge of Seven’s critical confidential information would be out of date and therefore there was no legitimate purpose in restraining him any longer than that. He should not be forced to endure the hardship of not being able to take up his new employment any longer.

Cascade clauses are okay
Employers and employees are often hesitant about the effectiveness of “cascade” clauses and they are sometimes the subject of criticism for excessive complexity. A cascade clause provides for several different combinations of different restraint periods and different geographic areas, to be read as separate covenants. The Courts are then asked to disregard those combinations that it considers unreasonable and enforce what is left over.

The decision in this case followed other recent decisions by endorsing this method of drafting a restraint clause as effective.

Winners and losers – the case, not the show

On Seven’s view of the case, as it was argued, it succeeded in restraining Warburton for about two months after his employment contract would have come to an end: hardly a stunning result.

On the other hand it successfully put Warburton out of the game for the rest of 2011.

The final word is probably best left to the Judge. Usually success in a case such as this would result in the loser paying the winner’s legal costs. In this case Warburton was required to pay 70% of Seven’s costs. In soccer parlance, probably a 2-1 win to Seven.


This article was originally published on SmartCompany.com.au where Peter is a regular contributor.