A recent high profile decision has highlighted that time is of
the essence for employers seeking to enforce restraint of trade
provisions against former employees, with a three-month delay in
commencing proceedings deemed sufficient to thwart an
employer’s application for interlocutory relief.
Scyne Advisory Business Services Pty Ltd v Heaney
[2024] NSWSC 275
These proceedings involve Scyne Advisory Business Services Pty
Ltd (Scyne), a new consulting firm arising from
PwC’s sale of its public sector advisory business, and Ms
Connie Heaney who had been a partner at PwC since July 2022 and
became an employee of Scyne from 9 November 2023.
On 29 November 2023, Ms Heaney gave notice of her resignation,
informing Scyne that she intended to join Downer Group, a
competitor of Scyne.
On 7 December 2023, Scyne directed Ms Heaney to take gardening
leave and confirmed that her final day of employment was 29
February 2024. This correspondence also referred the restraint of
trade provisions within Ms Heaney’s employment contract and
sought undertakings that she would not act in breach of those
provisions.
On 13 December 2023, Ms Heaney confirmed she was aware of her
restraint of trade provisions and that she would comply with those
provisions to the extent they were reasonable and enforceable and
otherwise had no intention of breaching the other ongoing
obligations under her employment contract with Scyne. Ms Heaney
refused to sign the undertakings and stated that she did not
consider her employment at the competitor had, or would, breach the
relevant restraint provisions.
From 13 December 2023 to 29 February 2024, further
correspondence was exchanged between the parties, with both parties
effectively reaching a stalemate by way of re-asserting the same
positions set out above.
Ms Heaney’s employment with Scyne ended on 29 February
2024.
On 4 March 2024, the same day Ms Heaney commenced her new
employment, Scyne commenced proceedings in the NSW Supreme Court
against Ms Heaney, where they ultimately applied for interlocutory
relief to restrain Ms Heaney from acting in breach of the
non-compete restraint of trade provisions within her employment
contract with Scyne.
Issues
In applications for interlocutory relief, the Court will
generally make a determination based on the following:
- whether or not there is a serious question to be tried. In
these proceedings, Scyne was required to demonstrate that there was
a real prospect that Ms Heaney may breach her ongoing obligations
when she joined her new employer - the balance of convenience between the parties. This involved
the Court examing whether the interlocutory relief sought by Scyne
would cause undue harm to Ms Heaney - whether there is any other matter or fact present which weights
in favour of, or against, the Court’s discretion to grant
interlocutory relief. In these proceedings, the Court considered
whether it was appropriate to grant the interlocutory relief sought
by Scyne against Ms Heaney following a three-month delay from the
time Ms Heaney gave notice of her resignation to the proceedings
being commenced.
Judgment
Serious question to be tried
The judgment found that Scyne demonstrated there was a serious
question to be tried in the proceedings.
On this issue, Ms Heaney gave evidence that it was expected that
she would be working in an internal role at Downer, rather than in
a role that directly deals with Downer’s clients. Scyne
presented evidence of the confidential information that Ms Heaney
was privy to in respect of her key client, as well as the
commercial impact that breaching her ongoing obligations would have
upon the company.
His Honour accepted Scyne’s evidence and found that on the
construction of Ms Heaney’s ongoing obligations, it was
possible that she could be in breach even if she was to work in a
strictly internal role at Downer.
Balance of convenience
As to the balance of convenience, the Court also found in
Scyne’s favour as Ms Heaney was unable to demonstrate that the
application, if successful, would cause her undue hardship.
Time is of the essence
The final issue that the Court considered was that of
Scyne’s delay from the date they became aware of the
circumstances of a potential breach of Ms Heaney’s obligations
(i.e. 29 November 2023, the date Ms Heaney gave notice of her
resignation) to the date they commenced proceedings (i.e. 4 March
2024).
His Honour cited the following principles in respect of the
timeliness of interlocutory relief:
- applications for interlocutory relief should always be brought
before the Courts “promptly” - the Court may use the timeliness upon which an aggrieved party
reacts to the infringement of its rights as a “litmus
test” for the seriousness of that infringement.
His Honour also found that:
- Scyne was not obliged to wait until Ms Heaney joined her new
employer to bring the application for interlocutory relief to the
Court on the basis that it was open to Scyne to have sought
interlocutory relief on the basis of the evidence of a threatened
breach by Ms Heaney - had Scyne brought an application to the Court at the time they
became aware of a threatened breach, the application for
interlocutory relief could have been resolved prior to Ms Heaney
joining her new employer, and possibly the final hearing.
Decision
In light of the above principles and considerations, His Honour
determined “that it would be most unreasonable now to restrain
Ms Heaney from continuing with her well-signalled intention to join
Downer simply because Scyne has now belatedly discovered the
urgency of the case.”
Accordingly, his Honour refused Scyne’s application for
interlocutory relief.
Key lesson for employers
For employers seeking to enforce the ongoing obligations within
their employee’s employment contracts, this decision is a
reminder that proceedings should be commenced as soon as possible
after the employer becomes aware of circumstances that support a
threatened breach of those ongoing obligations.
Further, this decision highlights that employers do not need to
wait until the employment ceases before commencing proceedings and
they should be commenced as soon as possible so that the issues can
be finally determined.
If you have any questions or need legal assistance with
enforcing restraint of trade provisions, please get in touch with
our team below.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader’s
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
individuals listed.
#Enforcing #restraints #trade #month #delay #dooms #employers #case #Employee #Rights #Labour #Relations
