Dismissing Employees and using Restraint ofTrade Clauses to Protect Your Business

FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.

TOGETHER WE’REraising THE BAR.

Dismissing Employees and using Restraint of Trade Clauses to Protect

Your Business

Karl Rozenbergs – Partner, EmploymentHall & Wilcox Lawyers



Overview • Unfair dismissal and adverse action claims

– What are they?– How they may affect you– How you can terminate an employee’s employment

safely• Restraint of trade clauses

– What are they?– How they can protect your business



Unfair Dismissal



Unfair Dismissal – who is covered?• Coverage

– Up to $118,100 or if earn more, covered by an award;– Banking, Finance and Insurance Award 2010 is likely to

apply• Minimum periods of employment

– Employers with less than 15 employees - 12 months continuous service

– Employers with 15 or more employees - 6 months continuous service• Includes casuals employed on a regular and systematic

basis, and who have a reasonable expectation of continuing employment on that basis



Unfair Dismissal – genuine redundancy• Not protected by unfair dismissal laws where

genuinely redundant• Genuine redundancy occurs where:– an employer no longer needs an employee to do a job

because of operational reasons;– the employer has complied with obligations in a

modern award or enterprise agreement to consult; and

– it is unreasonable for the employee to be redeployed



Unfair Dismissal – the risk• Unfair dismissal occurs where the dismissal was:

– ‘harsh, unjust or unreasonable’• Criteria for considering whether dismissal was

harsh, unjust or unreasonable:– must have a valid reason and provide procedural fairness



Unfair Dismissal – an employee’s remedies• Onus on employee• An unfairly dismissed employee can seek:

– reinstatement; or – compensation capped at six months’ pay.



Adverse Action – considerations• Applies to all employees regardless of income and

period of service • Reverse onus of proof on employer• Broad remedies available

– Reinstatement– Uncapped damages– Civil penalties



Adverse Action – what is it?• ‘Workplace rights’ – Protection against adverse

action• A person cannot take adverse action against

another person because the other person has a workplace right



Adverse Action – what is it?• Where the employer:

– dismisses employee; or– injures the employee in his or her employment; or– alters the position of the employee to the employee’s

prejudice; or– discriminates between the employee and other employees



Workplace Rights – what are they?• “Workplace Rights” - defined in Fair Work Act 2009

(Cth)– Benefits under a workplace law or workplace instrument– A role or responsibility under a workplace law or workplace

instrument– Can initiate or participate in proceedings under a workplace

law or workplace instrument– Can make a complaint or inquiry – even if only to the

employer!



Super Financial Services• Super Financial Services is a financial planning

business with twelve employees• Bob Slow has been employed as a financial planner

for 3 years and earns $150,000 p.a.• Slow is an ongoing worry for your business. He has

failed to meet his budget on several occasions and his performance is worsening

• Figures for the last quarter are in and Slow has failed to meet his budget yet again



Super Financial Services• Friday afternoon, Super Financial’s owner, John

Dodgy, takes Slow aside and tells him he no longer makes the cut… ‘You’re fired!’

• Prior to being dismissed, Slow has made a complaint about being bullied by Dodgy during his performance discussions



What are the risks to your business?• Slow can make either an:– unfair dismissal; or– adverse action claim.



Unfair Dismissal Claim• Despite his high salary, Slow can still make a claim

because he is covered by an award• Have a valid reason to dismiss related to Slow’s

‘performance’• No procedural fairness

– claim likely to be successful– facing potentially reinstatement or compensation of up to

$75,000



Unfair Dismissal Claim - tips• Be aware of the terms of any industrial instruments that cover

the employee• Have evidence of poor performance/misconduct• Ensure you have a valid reason to dismiss related to capacity

and conduct• Dismiss in a procedurally fair way• Document meetings/conversations• Ensure the employee is paid all their entitlements• Use a deed of release



Adverse Action Claim• Slow has a ‘workplace right’ because he has made a

bullying complaint• Will argue dismissal was a result of that complaint



Adverse Action Claim• Onus is on the employer to disprove this• Can claim reinstatement• If not, may claim uncapped compensation and

penalties. For example, $300,000 (representing 2 years salary) and penalties of $33,000



Adverse Action Claim - tips• Have a witness attend• Record any discussions in writing• If a bullying complaint arises from this process, deal

with it separately to any performance issues• Investigate the bullying issue on its own merits



Restraint of Trade Clauses



Overview• Why are they so important to your business?• What are restraints of trade?• How they can be used to protect your

business



Restraint of Trade – why are they important?• Primary asset of most financial planning practices is

its client base• Accessibility and portability of client lists makes

them easy to transfer or take from the business



Restraints of Trade – why are they important?• Generally, a person has freedom to engage in a

chosen profession including the freedom to:• compete with their former employer;• solicit customers of their former employer; and• use information gained during their employment in

certain circumstances



Restraint of Trade - remedies for breach• A valid restraint is your best form of protection• Remedies include:

– damages and an interlocutory injunction;– permanent injunction; and– account of profits.



Restraint of Trade• Three different types:– non-headhunt– non-solicit– non-compete



Restraints of Trade – must be reasonable!• A post-employment restraint will be unenforceable

unless it is reasonable in relation to the interests of both the parties and public policy

• Onus of showing reasonableness is on the party seeking to enforce – ie the employer



Restraint of Trade - is it reasonable?• Must be a connection with the employee’s employment• Focus on what type of employee you are dealing with:

• what did the employee do in their role?• where did the employee work?• what customer connections did the employee have?• what confidential information did the employee have access to?

• Are they a threat to your business if they leave?



Restraint of Trade - is it reasonable?• Reasonable as long as it goes no further than is

reasonably necessary to protect the employer’s legitimate business interests

• Legitimate interests include:– trade secrets– confidential information– established customer connections– goodwill



Restraint of Trade - is it reasonable?• Reasonableness is determined by looking at the:

– scope of the restraint;– area of the restraint;

• must be relevant to where the employee actually worked and had a connection

– duration of the restraint;• must be reasonable• use a cascading clause to assist the Court to sever



Restraint of Trade – Hall & Wilcox exampleYou will not for the restricted period after the termination of your employment with the Company, directly or indirectly:– solicit, canvass, approach or accept any approach from any

person or entity who is, or was during the 12 months immediately preceding the date of the termination of your employment, a client of the Company with whom you have had contact of a business related type, with a view to establishing a relationship with or obtaining the custom of that person or entity in a capacity which is the same or substantially similar to the relationship that person or entity has with the Company



Restraint of Trade – Hall & Wilcox example• ‘restricted period’ means:

– 12 months; or if unreasonable– 6 months; or if unreasonable– 3 months.

• This is known as a ‘cascading clause’



New South Wales• The Restraints of Trade Act 1976 (NSW)– Court can read down a restraint– Only in New South Wales



Restraint of Trade – scenario 1• Employee leaves Super Financial Services

– Paul Star is a highly valued employee and exceeds his budget every month

– You have been actively introducing him to all your clients – Star’s reputation is growing– He resigns just before Christmas



Restraint of Trade – scenario 1• Tips

– Free to compete if no restraint is in place– If restraint is in place, have a lawyer write to Star– If Star solicits clients, take legal action



Restraint of Trade – scenario 2• Purchase of Hot Deal Financial

– Wanting to expand, you decide to purchase Hot Deal Financial

– Hot Deal’s owner, Sam Dollar, is looking to retire– You paid a handsome amount for the client list



Restraints – scenario 2• Tips

– Ensure that the vendor is appropriately restrained in the sale contract

– When buying a business (or part of one) from a corporate entity, ensure that the individual directors (and shareholders, if they are not the same people) are individually restrained along with the selling company.



Questions• Karl Rozenbergs – Partner, Employment

– [email protected]• www.hallandwilcox.com.au

Dismissing Employees and using Restraint ofTrade Clauses to Protect Your Business

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