By Paul Moorhouse -
Snapshot
- Whether post-employment restraints will be enforceable after termination can be an important issue where a senior employee is deciding whether to leave employment in the face of repudiatory conduct by his or her employer.
- It is often said that post-employment restraints in an employment contract cannot be enforced against an employee where termination of the employment contract has resulted from the employer’s breach or repudiation of the contract.
- In recent years, two appellate decisions have pointed out the inconsistency between that proposition and the more general position that whether a contractual provision operates after termination is a matter of construction of the contract.
- A recent Victorian decision has held that (at least in Victoria) the law is that post-employment restraints do not survive the termination of an employment contract where the employee has accepted the employer’s repudiation of the contract.
A number of authorities, notably the Privy Council’s decision in General Billposting Company Ltd v Atkinson [1909] AC 118 (‘General Billposting’) and the High Court’s decision in Kaufman v McGillicuddy (1914) 19 CLR 1; [1914] HCA 63 (‘Kaufman’), are cited as authority for the proposition that post-employment restraint of trade provisions in an employment contract are not enforceable against an employee where termination of the employment contract has resulted from the employer’s breach or repudiation of the contract (see for example, Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 at [54] and Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 at [47] (‘Bond ’)).
General contract law position
Any automatic application of such a proposition is at odds with the position that applies generally to the operation of contractual provisions post-termination. The general contract law position is that contractual rights which have already accrued prior to termination are not automatically discharged on termination, and whether such contractual rights survive termination is a matter of construction which depends on the express or implied intention of the parties (McDonald v Dennys Lascelles Limited (1933) 48 CLR 457, at 476-7; [1933] HCA 25; Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827; Southern Han Breakfast Point Pty Ltd (In Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52 at [79]).
Post-employment restraints often expressly state that they continue to apply after termination regardless of the reason for the termination. Any such express statement should mean, given the usual contractual position (but contrary to the proposition for which General Billposting and Kaufman are often cited), that such provisions remain enforceable even if the employment contract ends as a result of an employer’s repudiatory breach being accepted by the employee.
The Full Court of the Supreme Court of South Australia has stated, in obiter, that the question of whether a post-employment restraint provision survives the termination of an employment contract ‘must depend on the proper construction of the contract’ (Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASFC 147, at [210]). In doing so, Blue J, with whom Kourakis CJ and Stanley J agreed, stated that Kaufman does not support the proposition that a party who has repudiated a contract leading to its termination by the innocent party can never enforce a restraint clause after termination.
A few years earlier, the Victorian Court of Appeal questioned the rationale of the proposition for which General Billposting and Kaufman are cited, given its variance from the usual contractual principle, but without stating that Kaufman no longer represented the law regarding the survival of post-employment restraint provisions (Bond at [47]). The Victorian Court of Appeal was not required to determine the issue in that matter. Shortly thereafter, Young AJ stated in obiter that the proposition for which Kaufman stands has been queried, but went on to say that it has been sanctioned by the High Court and a single judge would need to follow it (Pet Tech Pty Ltd v Batson [2013] NSWSC 1954 at [15]).
Richmond suggests that the proposition for which General Billposting and Kaufman are cited may not represent the law, whereas Bond and Pet Tech suggest that that proposition is susceptible to being overturned or further explained by the High Court in a suitable case.
