| Restrictions | OK |
|---|---|
| Jurisdiction | Employment Relations Authority - Christchurch |
| Reference No | CA 183/10 |
| Hearing date | 4 Jun 2010 |
| Determination date | 17 September 2010 |
| Member | H Doyle |
| Representation | A McRae ; C Clifford |
| Location | Timaru |
| Parties | Design Engineering (SI) Ltd v Kearins |
| Summary | RESTRAINT OF TRADE - Respondent sought to enforce restraint of trade, non solicitation, and confidentiality clauses in employment agreement (“EA”) - Respondent incorporated company while still employed by applicant - Applicant sole director and shareholder of company - Company to provide services in direct competition with applicant - Less than two weeks later respondent resigned without notice - Post resignation applicant discovered significant client had engaged respondent’s company to do work applicant may have done, but for respondent - Respondent claimed signed EA in 2001 and then resigned in 2002 and when reemployed in 2003 did not sign new EA - Claimed 2002 resignation meant 2001 EA not in effect and so not covered by restraint of trade, non solicitation and confidentiality clauses contained in it - Applicant claimed respondent continuously employed and period not performing work was unpaid leave - Found respondent never gave notice of resignation as required by EA - Found evidence showed applicant never considered respondent had resigned - Found respondent did not resign from employment in 2002 - Found therefore when applicant returned to work in 2003 continued to be employed on terms and conditions contained in 2001 EA - Applicant claimed restraint of trade and non solicitation clauses reasonable but if found not reasonable should be modified under s8 Illegal Contracts Act 1970 (“ICA”) - Found only proprietary interest applicant could have protected that was not merely to prevent competition was that of unfair competition arising from influence respondent may have over applicant’s clients - EA stated restraint of trade to be for 18 months - Found Employment Court described 12 months as upper end of period likely to be found reasonable - Found 18 months too long to be reasonable for restrictive covenant - Found given notice period was two weeks 18 month restraint of trade unreasonable - Restrictive covenants prevented respondent from working within 50 kilometre radius of applicant’s business premises - Found respondent would be required to move out of area to work - Found geographical limitation unreasonable – Found scope of restrictive covenant reasonable if limited to three month period - Applicant claimed respondent used confidential information about tenders and pricing - Authority found insufficient evidence to show respondent had breached confidentiality clause - Authority accepted because of loss of detailing work from client applicant suffered damage as result of breach of reasonable restrictive covenant of non-solicitation, if modified as to length - Authority found not in position to form firm view about level of damages from evidence - Parties to consider matter further - Found applicant had protectable proprietary interest - Found clause 12(b) could be modified to be reasonable - Authority given power to modify clause under s8 ICA by s162 Employment Relations Act 2000 (“ERA”) - Found power to modify clause restricted by s164 ERA which required Authority to have identified problem in relation to agreement and directed parties to attempt in good faith to resolve problem - Found problem only identified in Authority - Therefore Authority obliged to direct parties to mediation before could make order for modification - Parties directed to mediation - Parties to advise Authority if matter resolved or whether further order required |
| Result | Application partially granted ; Parties directed to mediation ; Orders made ; Costs reserved |
| Main Category | Restraint of Trade |
| Statutes | ERA s162;ERA s163;ERA s164;Illegal Contracts Act 1970;Illegal Contracts Act 1970 s8 |
| Cases Cited | Airgas Compressor Specialists Ltd v Bryant [1998] 2 ERNZ 42;Broadcasting Corporation of New Zealand v Nielsen (1988) 2 NZELC 96,040;Fuel Espresso Ltd v Hsieh [2007] 2 NZLR 651;Gallagher Group Ltd v Walley [1999] 1 ERNZ 490 ; (1999) 5 NZELC 95,936;Kiwi Stat Limited v Nichols unreported, P Cheyne, 27 Aug 2010, CA 138A/10;Marine Helicopters Limited v Stevenson [1996] 1 ERNZ 472;Medic Corporation Ltd v Barrett [1992] 2 ERNZ 1048 ; [1993] 2 NZLR 122 ; (1992) 5 PRNZ 345 |
| Number of Pages | 17 |
| PDF File Link: | ca 183_10.pdf [pdf 55 KB] |