Consultant’s Pursuit of Higher Paid Position Backfires: 12-Month Restraint Found Enforceable

Posted by April 17, 2017 | Articles, Restraints of Trade | No Comments

By MDC Legal

Mr Farah was a computer engineer employed by Thinkstorm Pty Ltd. They consulted him to the Queensland Department of Health in the use of “WorkBrain” – a software system that enables employers to manage their workforce (and seeks to obviate the need for HR departments run by humans).

Thinkstorm provided recruitment and consulting services to QLD Health.  After 5 years’ employment with Thinkstorm, Mr Farah handed in his notice and pursued greener pastures; promptly obtaining a higher paid position with Paxus Australia Pty Ltd.

In his new role with Paxus, Mr Farah was conveniently doing the same thing: he continued to provide WorkBrain technical consultancy services to QLD Health (as they say, stick to what you know).  Thinkstorm caught wind of Mr Farah’s defection to a competitor and swiftly sought to enforce a 12-month restraint of trade against him in injunctive proceedings in the NSW Supreme Court.

It was not in dispute that Mr Farah’s employment with Thinkstorm was previously governed by a series of three written contracts. Mr Farah disputed that the most recent contract – a letter of offer dated 30 June 2014 that moved him from a fixed-term contract to a continuing position and reduced his salary to $188,400 – governed his employment terms because it was a ‘letter offer’ and there was no record of him having signed it.

Justice Geoff Lindsay found that, regardless of the absence of a signed contract, “by conduct, the defendant accepted the offer conveyed to him”. Accordingly, the letter governed the conditions of Mr Farah’s employment, and he was subject to the undertaking contained in it that he would not engage in solicitation or competition for a period of 12 months from termination of his employment.

There was no dispute about the construction of the restraint provisions in the contract. Judge Lindsay found that the restraint “intended, inter alia, to prevent the defendant from working for QLD Health’s Payroll Portfolio section, in the provision of WorkBrain services, during the 12 months following” Mr Farah’s termination of employment.

Mr Farah contended that Thinkstorm’s application should fail “for want of an interest able reasonably to be protected” by the restraint. His Honour did not accept this argument, because although Mr Farah “exercised considerable autonomy in the performance of his duties owed” to QLD health, he did so as an employee of Thinkstorm, and he was contracted by Thinkstorm to provide services to QLD Health. Thinkstorm’s regular contact with QLD Health, independent of Mr Farah, established “commercial goodwill vis-à-vis QLD Health, which chooses to obtain services through consultants”. How QLD Health chose to engage consultancy services through a variety of corporations did not, in the Court’s view, deprive Thinkstorm “of goodwill capable of being protected by a reasonable post-employment restraint”.

On the enforceability of the restraint clause, Justice Lindsay noted that it appeared to be at the “outer limits” of what would be a reasonable duration, but that consultancy agreements in the industry commonly included restraints expressed to operate for 6 to 12 months. In the context, the restraint was found to be enforceable and valid.

In making that finding, His Honour noted that Mr Farah was not constrained to provide his professional services to parties other than QLD Health, and took into account that the services Mr Farah is qualified to provide required “particular expertise with commensurate remuneration”, that he was not an “unskilled worker, but…a highly-paid consultant” whose services QLD Health chose to acquire through corporations.

On Mr Farah’s submissions that he was not paid his annual leave entitlements, Justice Lindsay found that Mr Farah had not contended that “any unperformed obligation” was “interdependent with the obligation to comply with the restraint undertaking”. Mr Farah was “peeved” that Thinkstorm did not secure for him the position with QLD Health that he was able to secure through Paxus. However, he did not contend that a perceived failure of Thinkstorm to advance his interests as well as he may have hoped constituted a breach of contract. “It provides no ground for a refusal to hold [Mr Farah] to his contract with Thinkstorm”. Mr Farah is restrained from performing any services involving WorkBrain for QLD Health until 4 November 2017.

Hot tip: sticking to what you know when obtaining new employment may backfire when a client-specific restraint that protects an employer’s legitimate interest is likely to be enforceable and valid. It may be appropriate to widen the job search, and seek legal advice on your options.

Read the full case Thinkstorm Pty Ltd v Farah [2017] NSWSC 11

MDC Legal regularly advises employers and employees on restraint of trade matters. Contact us today if you need a review of a restraint provision in your employment contract, or if you are an employer needing assistance with drafting one that will protect your legitimate business interests.