| Restrictions | OK |
|---|---|
| Jurisdiction | Employment Relations Authority - Christchurch |
| Reference No | [2012] NZERA Christchurch 218 |
| Hearing date | 25 Sep 2012 |
| Determination date | 11 October 2012 |
| Member | A Dumbleton |
| Representation | C Hall, V Hodgson ; A Marsh |
| Parties | Taylors Floorcoverings & Furnishings Ltd v Brown |
| Summary | INJUNCTION – RESTRAINT OF TRADE – Applicant sought permanent injunction to prevent respondent breaching restraint of trade clause (“second ROT”) in parties’ employment agreement – Authority found parties did not reach agreement that starting point of second ROT would be varied – Found applicant would not have bought respondent’s business if were not ROTs present and respondent received valuable consideration for ROTs on sale of business – Found second ROT’s 12 month restraint period not unreasonable and second ROT’s specified area not too wide – Found no evidence respondent would suffer severe financial hardship during 12 month period – Found respondent breached second ROT by working for NDL – Found appropriate that permanent injunction granted and compliance ordered – Application granted |
| Abstract | Applicant offered respondent employment with applicant pursuant to sale and purchase agreement (“agreement”) for respondent’s business. Respondent was shareholder of vendor company that sold business. Agreement included restraint of trade clause (“first ROT”) that vendor and shareholders agreed for 12 months after termination date would not be engaged or otherwise linked to any business same, substantially similar to or in competition with applicant. Respondent’s employment agreement (“EA”) with applicant also included restraint of trade clause (“second ROT”) with similar terms. Respondent resigned from applicant to commence employment with third party (“NDL”) in direct competition with applicant. Authority previously granted interim injunction that respondent not to work for NDL until substantive matter granted. Respondent previously indicated would leave respondent but subsequently remained employed by applicant for almost another year and half. Respondent claimed agreed with applicant that 12 month period of second ROT began to operate when respondent first indicated would leave and had since expired. Respondent claimed did not withdraw resignation but allowed applicant more time to find replacement. Respondent claimed alternatively second ROT unenforceable as unreasonable interference with respondent’s ability to earn living and too wide in scope. Applicant denied parties agreed second ROT would begin to run when respondent first indicated would leave employment and claimed only indicated applicant might negotiate scope of second ROT.;AUTHORITY FOUND –;INJUNCTION – RESTRAINT OF TRADE: Authority noted first ROT of agreement enforceable against respondent in civil courts and only second ROT enforceable against respondent in Authority. Noted for respondent to avoid applicant taking any enforcement action, respondent would need to reach agreement with applicant to vary restraint in both EA and agreement. Respondent genuinely believed that applicant had agreed second ROT would run from when respondent first indicated would resign but no conduct on applicant’s behalf indicated parties had agreed on matter. Parties did not reach agreement that starting point of second ROT would be varied. Significant part of purchase of respondent's business was its associated goodwill and respondent’s relationships formed an essential part of that goodwill. Applicant acquired legitimate interest in protecting client relationships. Authority accepted applicant would not have bought respondent’s business if were not ROTs present and respondent received valuable consideration for ROTs on sale of business. Reasonable to prevent respondent for period after employment from creating or assisting competing business in same area using “intimacies and knowledge” acquired by respondent during involvement with business before and after sold to applicant. Particular industry applicant involved in was extremely competitive and relied on client relationships. Second ROT’s 12 month restraint period not unreasonable and second ROT’s specified area not too wide. No evidence respondent would suffer severe financial hardship during 12 month period. Second ROT justified on basis was necessary and reasonable for protection of goodwill. Respondent breached second ROT by working for NDL. Appropriate that permanent injunction granted and compliance ordered. Authority noted respondent had not breached second ROT’s non-solicitation clause. |
| Result | Application granted ; Compliance ordered ; Costs reserved |
| Main Category | Restraint of Trade |
| Statutes | ERA s137;ERA s162 |
| Cases Cited | Broadcasting Corporation of New Zealand v Nielsen (1988) 2 NZELC 96,040;Debtor Management (NZ) Ktd v Quail [1993] 2 ERNZ 498;Fletcher Aluminium Ltd v O’Sullivan [2001] ERNZ 46 ; [2001] 2 NZLR 731;Fuel Espresso Ltd v Hsieh [2007] ERNZ 60 ; [2007] 2 NZLR 651;Gallagher Group Ltd v Walley [1999] 1 ERNZ 490;Lindner v Murdock's Garage (1950) 83 CLR 628;Radio Horowhenua Ltd v Bradley [1993] 2 ERNZ 1085 |
| Number of Pages | 18 |
| PDF File Link: | 2012_NZERA_Christchurch_218.pdf [pdf 223 KB] |