Lesson for employers: Restraints, injunctions and gardening leave

AECI Australia Pty Ltd (AECI) sought an injunction restraining a former, resigned senior executive from taking up similar employment with Incitec Pivot Ltd.

The executive’s contract with AECI required three months’ notice of termination. On resignation, he advised he would continue working up to his final termination date. 

AECI, however, insisted that the executive was to remain employed, but that he was required not to attend work during his notice period, not to represent AECI in any way, and not to contact any actual or prospective customers. Effectively, he was placed on “gardening leave”.

“Gardening leave” refers to an employee's suspension from work on full pay for the duration of a notice period. It is useful to protect employers from an employee exercising influence or accessing confidential information in their final days.

Four days before the end of the executive’s gardening leave, AECI commenced proceedings for legal enforcement of restraint of trade clauses in his contract, preventing him from working with Incitec.

The clauses created two restraints:

• a restraint from being employed in a similar role at similar entities within a particular area for up to 12 months (“general restraint”)
• a restraint from soliciting material or habitual customers of the company and international corporate group (“non-solicitation restraint”).

To maintain the status quo while these proceedings were afoot, AECI sought an injunction preventing the executive from contravening these restraints until the matter was decided.

Injunction denied

The Supreme Court of Queensland considered that for the non-solicitation restraint, AECI did not have a strong enough case to justify injunctive relief against its contravention. There was no evidence that the former executive could have had the extensive knowledge covered by the unreasonably broad clause.

For the general restraint, the court considered that the circumstances required a stronger – and not merely “sufficient” – case that the general restraint was valid and enforceable against the executive. 

The practical effect of injunctive relief preventing the executive from working altogether meant that with each month, AECI could successfully restrain the executive without needing to properly argue its case for legal enforcement of the restraint of trade clauses.

There was also a two-month delay on the part of AECI. The court considered injunctive relief ought to have been sought much sooner. The court was critical of AECI for placing the executive on gardening leave without taking any steps to address the restraint or apply for an injunction during the period that the executive was still receiving his normal remuneration. Had they done so, the injunction may well have been granted on an interim basis and the final hearing could have been expedited to resolve the matter before the end of the gardening leave period.

Given the significance of these matters, the court was not convinced that AECI had established a sufficient likelihood of success to justify injunctive relief enforcing the general restraint. 

Lessons for using gardening leave

The case provides useful lessons for employers considering a similar approach to restrain a valuable former employee from competitors:

• the court is acutely aware of the significant influence injunctive relief can provide in circumstances where the substantive legal argument does not need to be fully established
• injunctive relief is at the court’s discretion, which requires the court to balance the effects of failing to grant an injunction against the detriment granting it would cause the other
• the court’s assessment will take into account a wide variety of factors, including an employee’s personal circumstances
• the courts will encourage employers to use the gardening leave period to apply for any necessary relief and will be critical of an employer who waits for the end of the gardening leave period before commencing the necessary claims. 

To read more about the case, click here.

Authors: Rachel Drew & Aiyana O’Meara

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The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Rachel Drew

Aiyana O’Meara

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