Australian Supreme Court Decision Holds Important Lesson for Companies with Australian Operations Regarding Use of Post-Employment Restraints

On December 20, 2013, in Pet Tech Pty Ltd v Batson [2013] NSWSC 1954, Justice Young of the New South Wales (NSW) Supreme Court ruled that businesses that want to enter into enforceable post-employment restraint agreements in Australia must ensure those agreements are written in accordance with Australian law.  The decision holds an important lesson for any company with Australian operations.    

Pet Tech Pty Ltd brought proceedings against one of its former sales agents attempting to prevent the employee from using or retaining information that the company considered to be confidential.  Post-employment restraints like this are not uncommon in Australia, particularly for executive, management and sales employees.  However, in this case, the court noted that it was required to interpret the enforceability of a “very strange” agreement because the document appeared to be an “American document which has been adopted to Australia unthinkingly.”  Accordingly, Justice Young said that “whatever its effect under American law might be I have to deal with its effect in New South Wales.”  As such, the court advised the company “to get some local lawyers to draft an actually enforceable contract” to cover employees in the future.   

Because the company had failed to have its employees sign agreements that were legally compliant with Australian law, the court determined that the relevant clause upon which the company sought to rely came “very close to being void.”  The clause in question which stated, “[the employee has] the burden in any dispute of showing that information is not [the company’s] confidential information,” placed the onus of disproving that something is not confidential information onto the employee.  The court found this clause to be problematic because “it virtually means that whatever the [company] says must be accepted by the court unless the contrary is proven.”

Another important point the court highlighted was the fact that the agreement purported to not only bind the plaintiff company but also “its parents, subsidiaries and affiliates” (including the company’s related U.S. entity), which is not an uncommon provision contained in U.S. confidentiality agreements. The court said that “a contract with more than one part is either a joint contract, a joint and several contract or a several contract.  . . .  if there is no specification as to whether the contract is joint or otherwise it is taken to be a joint contract.  The contract accordingly must be construed as one with not only the plaintiff but also jointly with its parents, subsidiaries and affiliates.  Under rule 6.20 of the Uniform Civil Procedure Rules 2005 all these people must be plaintiffs before the contract can be enforced.”

As such, the use of broad post-employment restraint documents in Australia which purport to extend coverage to a company and its related entities should be carefully drafted to clearly spell out the document’s intention should a dispute arise. Alternatively, as this case appears to indicate, companies that engage in these types of disputes will need to include relevant related entities as parties to the dispute.   

Pet Tech Pty Ltd presents a number of important lessons for U.S. companies doing business in Australia, and reinforces that it is extremely important to ensure that a company’s employees are subject to terms and conditions of employment that are compliant with applicable local laws. 

In Australia, significant consequences can result from a company’s failure to have legally compliant contracts.  If a business has related companies and/or a number of employees working in Australia, employers should undertake a review of the language in its current contracts.  The law in Australia is complex when it comes to post-employment restraints, non-competes and the protection of confidential information, intellectual property and proprietary information.  Accordingly, businesses should not adopt a one-size-fits-all approach.  Unless contract terms are properly drafted, they are unlikely to be enforceable.    

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.