A 9-month post-employment restraint of trade was found to be reasonable to protect the plaintiff’s confidential information after 2 senior employees breached contractual and fiduciary duties by going to work for a competitor in the HR software market.
The defendants, Mr McMurchy and Mr Kumaran, both left their employment with the plaintiff, Employsure Pty Ltd, to work for the second defendant, ELMO Software Ltd. The plaintiff and the second defendant are competitor businesses who both provide HR software for employers. Mr McMurchy was a manager involved with new software being launched in Australia and New Zealand. Mr Kumaran was a senior salesperson.
The plaintiff applied to the Supreme Court of New South Wales to enforce post-employment restraints and for injunctive relief to prevent the employees using its confidential information.
Mr McMurchy — breach of contractual and fiduciary duties and restraint enforceable
The Supreme Court found that giving only 4 weeks’ notice when his employment contract required 3 months’ notice was not effective to terminate Mr McMurchy’s employment contract. He therefore remained employed until the employer gave him 3 months’ notice of termination of his employment contract in January 2021. This brought the contract to an end 3 months later, in April 2021.
Mr McMurchy was accordingly in breach of his contract with the plaintiff by taking up employment with the second defendant in January 2021. He had contractual and fiduciary obligations that he breached by accepting employment with the second defendant, including to avoid a conflict with his loyalty to the plaintiff.
The court also found that a 9-month post-employment restraint from when the plaintiff gave Mr McMurchy notice of termination was reasonable. The court found that, despite some differences, the 2 employers had similar products aimed at the same or similar markets such that they were regarded as competitors or “in competition” for the purpose of the restraint. Mr McMurchy had confidential information as a result of his role as a manager with the plaintiff. He had been integrally involved in the development and launch of new software. This was information that could be used by the second defendant to the detriment of the plaintiff. The amount of time the confidential information would remain current was relevant to determining the time for the restraint.
Mr McMurchy also breached his express contractual duties to faithfully and diligently perform and to promote the interests and prosperity of the plaintiff, and his implied duty of fidelity and good faith, by inducing or encouraging Mr Kumaran to leave the plaintiff.
Second defendant liable for inducing breach of contract
The second defendant was also liable for the tort of inducing Mr Kumaran’s breach of his contract with the plaintiff. Importantly, the second defendant was found to have had an intention to induce or procure the breach. The second defendant positively encouraged Mr McMurchy to recruit Mr Kumaran to leave his employment with the plaintiff. The plaintiff suffered loss as a result of Mr Kumaran resigning.
Mr Kumaran — breach of contract and restraint enforceable
Mr Kumaran was in breach of his employment contract by working for the second defendant. It was “entirely reasonable” for the plaintiff to impose restraints on Mr Kumaran to protect the use or misuse of the plaintiff’s confidential information. In his role as “sales partner” he had access to a lot of confidential information, and he was “intimately involved in the needs and potential needs of customers”.
The court found a 9-month restraint was reasonable, given the amount of time Mr Kumaran would retain the plaintiff’s confidential information and how long it would remain current.
Injunctive relief to protect plaintiff’s confidential information
The court considered injunctive relief was appropriate to restrain Mr Kumaran and Mr McMurchy from using acquired knowledge and familiarity with the plaintiff’s confidential information.
