Aussie Home Loans v X Inc Services [2005] NSWSC 285 | Case summary

6521/04 AUSSIE HOME LOANS LTD & Anor v X INC SERVICES PTY LTD & Ors JUDGMENT 1 HIS HONOUR: The first plaintiff seeks to enforce a term of a contract of employment with its former employee, Mr Kolenda, who is the third defendant. Mr Kolenda was employed as the state manager for Victoria of the first plaintiff under a contract made on 28 March 2001. The contract was terminated on 10 June 2004. Clause 14(a)(ii) recorded his agreement that he would not, for a period of twelve months after the termination of his employment, for any reason, solicit, interfere with or endeavour to entice away any employee or contractor of the first plaintiff. 2 Mr Kolenda is a director of the first and second defendants, which have established a rival business to the plaintiffs. 3 Until 30 June 2004, the first plaintiff was in the business of providing and arranging retail and business mortgage finance. From September 2002, its business included arranging home mortgage finance for retail customers, either from itself or from its related companies, or from third party lenders including banks. It received a commission on the loans which it arranged between retail customers and third party lenders. It entered into contracts with loan writers, who acted as independent contractors, to arrange the loans. Almost all of the revenue generated by the first plaintiff was generated through commissions on loans arranged by the loan writers. Part of the commission which the first plaintiff received from such loans was paid by it to the loan writers. There are different categories of loan writers. The majority are classified as "Aussie Mortgage Advisers". After a period of time acting as an Aussie Mortgage Adviser, a loan writer might aspire to become what is called an "Aussie Representative". The principal difference between the two categories of loan writers is that Aussie Representatives do not receive any referrals of potential customers from the plaintiffs, but instead rely on their own contacts and networks to obtain clients. They receive a higher remuneration than do the Aussie Mortgage Advisers. 4 The third defendant was employed as the Victorian state manager. There was no clear evidence of his duties as state manager. However, it seems that he was responsible for managing the loan writers in Victoria. Loan writers reported directly to regional sales managers, or retail managers, who in turn reported to the state manager. 5 Until 30 June 2004, regional sales managers and state managers were employed by the first plaintiff. From 1 July 2004, the first plaintiff re-structured its business operations. From that date, the only part of its business which it continued to carry on, was contracting with loan writers. The second plaintiff, AHL Investments Pty Ltd, took over the rest of the first plaintiff's business. 6 From 1 July 2004, the employees of the first plaintiff were employed by the second plaintiff. These included the fifth to eighth defendants. The third defendant had resigned from the first plaintiff on 11 June 2004. The fourth defendant's employment terminated on 30 June 2004. The fifth defendant resigned on 8 October 2004. The sixth defendant resigned on 12 October 2004. The seventh defendant resigned on 26 October 2004. The eighth defendant resigned on 27 September 2004. The fifth to eighth defendants had been employed as regional sales managers. The fourth defendant had been employed as head of sales operations. Each of the third to eighth defendants has commenced to provide services to the first or second defendants, although, except in the case of the third defendant, it is not clear in what capacity they are acting. 7 The contracts of the fourth to eighth defendants with the first plaintiff all contained a term that for twelve months after the termination of their employment, they would not solicit, interfere with or endeavour to entice away any employee or contractor of the first plaintiff. In relation to the fifth to eighth defendants, who, from 1 July 2004 until their resignation, were employed by the second plaintiff, there was a dispute as to whether the same term, or a term to like effect, was contained in their contracts of employment with the second plaintiff. 8 The position taken by the plaintiffs was that the fifth to eighth defendants had a contractual obligation for a period of twelve months after the termination of their employment by the second plaintiff, not to solicit, interfere with or endeavour to entice away any employee or contractor of the second plaintiff. The plaintiffs did not contend that under their contracts with the second plaintiff, the fifth to eighth defendants could be restrained from soliciting, interfering with or endeavouring to entice away contractors of the first plaintiff. Nor did they contend that after 30 June 2004, the first plaintiff could enforce the contracts of employment which had been entered into with it, and which terminated on that date. 9 None of the defendants gave evidence. The evidence clearly established that in late January 2005, the third defendant solicited a contractor of the first plaintiff, a Mr Nunn, and endeavoured to entice him to work with the first or second defendants. 10 However, it was submitted for the third defendant that the term of his contract of employment with the first plaintiff, which prohibited him for twelve months from the termination of his employment from soliciting, interfering with or endeavouring to entice away employees or contractors of the first plaintiff, was an invalid restraint of trade. 11 The third defendant's contract of employment was governed by Victorian law. Neither party contended that the Restraints of Trade Act, 1976 (NSW) applied. Both parties agreed that the validity of the clause was to be determined according to the common law. Claim Against Third Defendant 12 The third defendant belatedly sought to put in issue whether the contract upon which the first plaintiff sued was the contract which governed his employment at the time of his resignation. The reason for this contention was that the plaintiffs' evidence established that the third defendant was the "general manager - distribution". His contract of employment provided for him to hold the position of state manager for Victoria. He submitted that the first plaintiff had not proved that the contract of 28 March 2001, containing clause 14(a)(ii), was the contract under which he was employed at the time of his resignation. 13 However, in his defence the third defendant had admitted having entered into the contract with the first plaintiff on 28 March 2001, which contained the clause 14(a) which the first plaintiff sought to enforce. He also admitted that that contract was terminated on 11 June 2004. He pleaded that the contract was for his employment in the position of state manager and that at the time of his resignation he was no longer employed as state manager. However, he did not plead that his employment with the plaintiff was governed by any other terms. His pleading was inconsistent with a contention that the contract of employment of 28 March 2001 had come to an end at any time before 11 June 2001. He did not plead that its terms had been varied, save in relation to the position which he occupied. He did not lead any evidence of any such variation. In the course of final submissions, counsel for the third defendant sought leave to withdraw the admission. I refuse that leave. If the third defendant wished to contend that his contract of 28 March 2001 had been discharged prior to his resignation, or that its terms had been varied, or that in some other way clause 14(a)(ii) was not a term of his contract of employment at the time he resigned, it behoved him to plead that issue clearly. He did not do so. Nor was any evidence adduced to establish that the contract of employment had been discharged, or that it had been varied other than in respect of the position he occupied. If the matter were to be put in issue, the plaintiffs may well have been able to adduce further evidence about it. 14 I turn then to the validity of clause 14(a)(ii). The first question is whether a clause against a former employee poaching employees or contractors of the employer can ever be valid. There is longstanding authority that covenants that restrain an ex-employee from competing with his employer are invalid, unless they are necessary to prevent disclosure of trade secrets or the use of a connection built up by the employee with the employer's customers. (Heydon, The Restraint of Trade Doctrine, 2 ed p 66). 15 In Herbert Morris Ltd v Saxelby [1916] 1 AC 688, the covenant was against the employee being engaged either as principal, agent or servant or otherwise in the same kind of business as that in which he had been employed. It was in that context that Lord Atkinson, speaking of a case of employer and employee, said that: "In all such cases as this, one has to ask oneself what are the interests of the employer that are to be protected, and against what is he entitled to have them protected. He is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also entitled not to have his old customers by solicitation or some other means enticed away from him. But freedom from all competition per se apart from both these things, however lucrative it might be to him, he is not entitled to be protected against. He must be prepared to encounter that even at the hands of a former employee." 16 In a similar vein, Lord Parker said (at 710): "… The reason, and the only reason, for upholding such a restraint on the part of an employee is that the employer has some proprietary right, whether in the nature of trade connection or in the nature of trade secrets, for the protection of which such a restraint is - having regard to the duties of the employee - reasonably necessary. Such a restraint has, so far as I know, never been upheld, if directed only to the prevention of competition or against the use of the personal skill and knowledge acquired by the employee in his employer's business." 17 In Attwood v Lamont [1920] 3 KB 571, Younger LJ said (at 590): "…covenants against competition by a former servant are as such not upheld; and the permissible extent of any covenant imposed upon a servant must be tested in every case with reference to the character of the work done for the employer by the servant while in his service and by the consideration whether in that view the covenant taken from him goes further than is reasonably necessary for the protection of the proprietary rights of the covenantee." 18 In Lindner v Murdock's Garage (1950) 83 CLR 628, Latham CJ said (at 633-634): "Where an employee has access to trade secrets or other confidential information he may be restrained by agreement from communicating those secrets or such information to other persons, and particularly to competitors in trade with his employer. Again, an employee who is brought into personal contact with his customers of his employer may by agreement effectively bind himself to abstain after his term of service has been completed from soliciting the customers of his former employer. In these cases the covenant in restraint of trade is not a covenant against mere competition but is a covenant directed to securing a reasonable protection of the business interests of the employer, and in the circumstances is not unjust to the employee. The interest which can validly be protected is the trade connection, the goodwill of the business of the employer." 19 On the other hand, Fullagar J said (at 650): "There may, of course, be cases in which the employer has no interest which can legitimately be protected by any covenant in restraint of an employee's trade. But, generally speaking, if there is an interest which may legitimately be protected - whether because the employee will learn trade secrets or because he will come into close relations with other customers or for any other reason - that interest may be protected not merely by a covenant against the unfair use and advantage as such but, within limits which will be jealously scanned to see that the restraint goes no further than is reasonably necessary, by a covenant restricting the actual carrying on of a trade or occupation." 20 These statements must be read in the context of the issues which the cases decided. In those cases the restraints which were sought to be upheld were restraints against the former employee carrying on the trade in which he had been engaged for his employer, either by himself or for a new employer. To justify a restraint in those terms, it is necessary to show that the restraint goes no further than is reasonably necessary to protect the employer's trade secrets, or the trade connection of the employer with his customers. In my view, those authorities do not decide the question whether an employer may have a legitimate interest in being protected against his employees or contractors being enticed to leave to work for the former employee. 21 In Ecco Personnel Pty Ltd v Barrett (SCNSW, 2/9/96, unreported), Young J (as his Honour then was), enforced a covenant by a former employee not to solicit employees of the plaintiff. 22 In Dawnay, Day & Co Ltd v de Braconier d'Alphen [1997] IRLR 442, the English Court of Appeal had to consider two apparently conflicting lines of authority on the validity of covenants by employees after the termination of their employment not to endeavour to entice other employees of the employer to leave their employment. In Ingham v ABC Contract Services (UKCA, unreported, 12/12/93), Leggatt LJ, with whom Russell LJ agreed held that the employer had a legitimate interest in maintaining a stable, trained workforce in what was a highly competitive business, which could be protected against solicitation and enticement by the former employee. 23 In Hanover Insurance Brokers Ltd v Schapiro [1994] IRLR 82, senior directors and a senior manager of an insurance broker, having resigned their employment, established a rival business. Their employer sought to enforce covenants in their employment agreements which included covenants that, for twelve months after termination of their employment, they would not solicit or entice any employees of the company to the intent or effect that such employee terminated that employment. Dillon LJ, with whom Nolan LJ agreed, said (at [15] - [16]): "The effect of the injunction under paragraph 1(b) of the order would be to prevent the defendants, as employers in the insurance brokerage business in competition with HIB which they are entitled to set up, from poaching employees from HIB. But the difficulties in law in the way of a non-poaching agreement between employers are very clearly explained in the decision of the Court in Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1959] Ch 109. In particular, the employee has the right to work for the employer he wants to work for if that employer is willing to employ him. Moreover, the restriction as drawn would apply to all employees of HIB irrespective of expertise or juniority, and would apply to those who were employees at the time of the solicitation or enticement even if they had only become employees after all the defendants had left HIB's service. HIB cannot impose a mere covenant against competition on the defendants. That is why a covenant not to canvass persons who had become customers of HIB only after the defendants had ceased to be employees of HIB would be invalid (see Konski v Peet [1915] 1 Ch 530). The same must be the case with employees. I agree with the judge on this and would dismiss the cross-appeal. Mr Serota submits that an insurance broker depends on its staff and the team will of its staff, and that the goodwill of an insurance broker's business depends on its staff. So in a sense it does, as with any other company, but that does not make the staff an asset of the company like apples or pears or other stock in trade, nor does it entitle HIB to impose a covenant against competition on the defendants." 24 There are three strands in this reasoning. First, that a covenant against competition, as such, is not enforceable. Employees are entitled to work for whatever employer wishes to employ them, if they do not breach their employment contracts. Secondly, that the covenant was too wide, because it applied to all employees, however junior. Thirdly, that it was too wide, because it applied to the enticement of employees who had only become employed after the defendants had terminated their own employment. This was a restraint against mere competition. The last two matters indicate that a covenant against poaching employees of a former employer is not necessarily invalid. The employer may be able to demonstrate a legitimate interest against this particular form of competition, but the restraint will be invalid if it goes wider than is necessary to protect such an interest. 25 In Dawnay, Day & Co Ltd v de Braconier d'Alphen, Evans LJ who gave the leading judgment said: "I would agree … that an employer's interest in maintaining a stable, trained workforce is one which he can properly protect within the limits of reasonableness by an undertaking of this sort. But it does not follow that that will always be the case. The clause can be regarded as objectionable because it restricts not only rights of a former employee to recruit staff for his new business but also the opportunities of the remaining employees to learn about future employment possibilities for themselves. However, their ability and right to do so through making enquiries of their own, and through advertisements and other channels of communication in the normal way is not restricted at all. The employer's need for protection arises because the ex-employee may seek to exploit the knowledge which he has gained of their particular qualifications, rates of remuneration and so on, which the judge included in his general description of specific confidential information which the managers acquired." [at [45] - [46]). 26 This indicates that, just as a general covenant restraining competition may be justified because of the need to protect trade secrets or a trade connection, rather than a more limited covenant against disclosing trade secrets or canvassing customers, so may a restraint against enticing employees be justified by reference to confidential information which the ex-employee has about the relations between his former employer and its employees. It is well established in this area that a legitimate interest may be protected by a wider covenant than one directed specifically to the interest which may legitimately be protected, because of the difficulties of enforcement. (Littlewoods Organisations Ltd v Harris [1977] 1 WLR 1472 at 1479). 27 In the present case, the evidence as to the information known to the third defendant and his role and responsibility with the first plaintiff, was scanty. The direct responsibility for assisting, and providing motivation and guidance to loan writers, rested with the regional sales managers. The regional sales managers reported to the state manager. The third defendant's responsibilities as general manager - distribution, included supervision and oversight of about half of the first plaintiff's loan writers. He had access to their names. He knew the first plaintiff's procedures, operation structures and training regimes. I infer that he knew the standard terms of the Victorian loan writers' contracts as at 30 June 2004 and the then basis upon which commission to be paid to those loan writers was calculated. That basis was reviewed and altered after the third defendant's departure. 28 The plaintiffs submitted that they devoted substantial resources to training and nurturing their loan writers. Although the loan writers can commence endeavouring to sell loans after as little as two weeks' training, they remain under the supervision of their regional sales managers. Typically, for a period of at least some months, they will be accompanied in their meetings with prospective clients by more senior representatives. They are given training courses which take about eight to ten weeks to complete. The training involves attending seminars, completing course work and the successful completion of written tests. On average, it takes a loan writer about 22 months to make the transition from Mortgage Adviser to Aussie Representative, where the loan writer no longer requires access to leads from the plaintiffs, but has developed his or her own customer base and network of contacts. It is at that stage that the plaintiffs obtain the most significant benefit from their relationship with the loan writers. The plaintiffs spent about $1,500,000 in the last financial year on providing training for the more than 400 loan writers with whom the first plaintiff has contracts. 29 However, the fact that the first plaintiff depends upon its contractors to generate its commission income, and the fact that it spends time and money in training those contractors, both as Mortgage Advisers and as Aussie Representatives, does not mean that it is entitled to be protected from competition from others, including its former employees, in a rival business using similar business methods, namely, the use of agents to write loans on commission. The contractors have the right to work for a rival business which may offer more attractive terms of engagement upon duly terminating their arrangements with the plaintiff. A clause whose practical effect is to inhibit their working for the principal of their choice is to be scrutinised carefully. (Hanover Insurance Brokers Ltd & Ors v Schapiro & Ors [1994] IRLR 82 at 86). 30 The reasonableness of the restraint must be assessed at the time the contract was entered into. Hence, it must be assessed against the position for which the contract provided, that is, as Victorian state manager. In that position, I can infer that the third defendant would be in a position to know the capacities and personalities of the loan writers who reported to the Victorian regional sales managers or retail managers, as well as the matters referred to in paragraph 27. 31 However, the term against enticing the employees or contractors of the first plaintiff was not limited to the loan writers in Victoria for which as Victorian state manager the third defendant could be expected to be responsible. The term applied not only to the first plaintiff's contractors, but also to any employee of the first plaintiff, whatever his or her position. The restraint against solicitation of employees of any description is clearly too wide to be enforceable. This did not concern the plaintiffs, because, since 30 June 2004, the first plaintiff has had no employees. The words "employee or" can be severed from the clause to save it from invalidity, where that invalidity arises from the width of the expression "employee". 32 If the words "employee or" are severed, the clause restrains the third defendant from soliciting or endeavouring to entice away any contractor of the first plaintiff. The clause applies both to contractors who were contracted to the first plaintiff whilst the third defendant was employed by it, and to those who may only have become contractors after his employment was terminated. In relation to such persons, it is difficult to see how it could have been thought when the contract was made, that the third defendant would be likely to have access to confidential information relating to such a person's contract, which could justify a restraint against enticement. Clearly the third defendant could not have developed a personal rapport with any such person through the facilities offered by his employer. 33 The plaintiffs submitted that by reason of his employment, the third defendant would become privy to what was called the first plaintiff's business model, and to those points where the first plaintiff could be vulnerable in its dealings with its contractors, whether they were existing contractors, or became contractors only after the termination of the third defendant's employment. Whilst there was some evidence about the importance to contractors of their employer's business model, the evidence did not identify in any detail what that meant in relation to the first plaintiff's dealings with its contractors. There was evidence that the terms on which the first plaintiff paid a trail commission to its contractors after the contractor had terminated his relationship with the first plaintiff, was a cause of disquiet amongst some loan writers. It does not appear to have been a secret. It does not appear that the third defendant would be able to take advantage of his knowledge of that matter to attract loan writers, in a way in which he could not have done, had he not been employed by the first plaintiff. 34 As in Hanover Insurance Brokers Ltd v Schapiro, the restraint against enticement of contractors who might become contractors to the first plaintiff after the termination of the third defendant's employment, is a restraint against competition per se. It is not justified by the third defendant's access to confidential information. 35 Even in its application to persons who were contractors during the period of the third defendant's employment, the restraint is wider than is reasonably necessary to protect the legitimate interests of the first plaintiff. It applies to contractors not only in Victoria, but in other states and territories with whom the third defendant, as Victorian state manager, could not be expected to have had dealings and for whose supervision he could not be expected to have been responsible. It was not proved that the third defendant could be expected to have had access to confidential information relating to loan writers outside Victoria. 36 It was also submitted that the twelve-month period of the restraint was too long. The reasonableness of such a period of restraint, if it is otherwise justifiable, will often be difficult to gauge. Where the parties have equal bargaining power, it will often be appropriate to regard them as the best judges of what length of period of restraint is reasonable. There is no evidence to suggest that the first plaintiff and the third defendant did not have equal bargaining strength in relation to the term which they negotiated. 37 However, three matters point to the period of the restraint as being too long. First, the loan writers whom the third defendant was prohibited from soliciting, could be terminated either by them or by the first plaintiff on one week's notice. Secondly, the market for the services of loan writers was competitive and fluid. The terms of engagement of the contractors was subject to periodic review. It is consistent with their contracts being terminable on short notice, that loan writers should be able to move readily to other brokers. Thirdly, the third defendant's contract of employment was terminable by either side on one month's notice. Hence, when the contract was entered into, the first plaintiff would have been entitled to terminate the contract after the third defendant had given as little as one month's service, but then enforce the restraint for a further period of twelve months. 38 As the third defendant's contract of employment was terminable on only one month's notice, and the contractors' engagement could be terminated on one week's notice, a restraint against soliciting the contractors to a rival business for a period of twelve months after the termination of the third defendant's employment, seems to me to be excessive. It is not justified by any confidential information which, at the time his contract of employment was entered into, the parties expected he would have, which would give him a springboard advantage which he would not have had, had he not been employed. In the circumstances of this case, I consider the twelve-month period of restraint to be excessive. 39 For these reasons, I consider the restraint, in its application to contractors, to be excessive in three respects: its application to contractors to whom the first plaintiff was not contracted at the termination of the third defendant's employment; its application to contractors outside Victoria; and its length. 40 The covenant cannot be read down to apply only to contractors in Victoria who were contractors of the first plaintiff during the period of the third defendant's employment. Nor can it be read down to apply for a lesser period than twelve months. The Restraints of Trade Act 1976 (NSW) is inapplicable. Because the clause goes further than is reasonably necessary to protect the legitimate interest of the first plaintiff, it is unenforceable at common law. It follows that the first plaintiff's claim against the third defendant seeking to restrain him from breaching the clause must fail. Claim Against the Fifth to Eighth Defendants 41 It was not alleged that the fifth to eighth defendants had breached their contracts of employment with the second plaintiff. However, the second plaintiff contended that there was a dispute between the parties as to what the fifth to eighth defendants could properly do in their dealings with employees or any contractors of the second plaintiff, without infringing the terms of their contracts of employment prohibiting the soliciting or endeavouring to entice away the employees of the second plaintiff. The plaintiffs sought a declaration that the fifth to eighth defendants were restrained by their contracts, for a period of twelve months from the termination of those contracts, from responding to any approach from a person who was an employee or contractor of the second plaintiff in a way which would "call for", "request", "petition", "entreat" or "persuade" that person to end their contract with the plaintiffs. That collocation of synonyms for the word "solicit" was drawn from the judgment of Stein JA, with whom Sheller JA and Fitzgerald AJA agreed, in Barrett & Ors v Ecco Personnel Pty Ltd (NSWCA, 24/11/98, unreported). 42 Even if I were satisfied that the restraints against soliciting or endeavouring to entice away employees or contractors of the second plaintiff were contained in the contracts of employment between the fifth to eighth defendants and the second plaintiff, it would not be appropriate to make the declarations sought. There is no evidence that any of the fifth to eighth defendants had solicited or endeavoured to entice away any employee or contractor of the second plaintiff. The plaintiffs' solicitors have corresponded with the solicitors for the defendants to seek to create an issue between the parties as to what the defendants are allowed to do after the termination of their contracts of employment. Some undertakings have been offered and rejected as being insufficient. However, this correspondence does not provide a sufficient basis upon which the Court ought to make a declaration as to how the restraint should be interpreted, in the absence of any complaint that the fifth to eighth defendants have acted in breach of their contracts. 43 The contracts purport to prohibit the fifth to eighth defendants from "solicit[ing], interfer[ing] with or endeavour[ing] to entice away any employee or contractor of the Company". Whether particular conduct amounts to soliciting, interfering with or endeavouring to entice away, must be assessed by reference to particular facts. The use of synonyms to explain the scope of contractual language which uses ordinary English words, is often a useful way of explaining how the contractual language applies in a given situation. That was the position in Barrett & Ors v Ecco Personnel Pty Ltd. But synonyms are not a substitute for the contractual language itself. In my view, it would be inappropriate to make any declarations as to the scope of the contractual restraints on the artificial basis upon which the plaintiffs seek to raise a dispute with the fifth to eighth defendants. 44 Another reason for declining to make any such declaration is that it is impossible to say whether the restraints, assuming that they are included in the contracts of employment of the fifth to eighth defendants with the second plaintiff, are enforceable. That question would have to be assessed by having regard to the circumstances of the employment of each defendant. It would be necessary to consider whether the Restraints of Trade Act 1976 (NSW) applied to any defendant, who it might be alleged was in breach of contract. These are not issues which can be decided in the abstract. 45 Finally, I do not consider that the evidence established that the post-contractual restraints were incorporated as terms of the contracts of employment between the plaintiffs and the second defendant. The fifth to eighth defendants were all initially employed by the first plaintiff under contracts, which included the post-contractual restraints against canvassing or soliciting or endeavouring to entice away persons who had been clients of the first plaintiff, or employees or contractors of the first plaintiff. On 28 November 2003, Ms Lynda Harris wrote to each of the fifth to eighth defendants as "Executive Director General Manager People" on behalf of the first plaintiff. She advised those defendants that, as a result of recent legislative reforms, it was proposed that from 1 January 2004, the first plaintiff's business would be operated by the second plaintiff, AHL Investments Pty Ltd. She advised that this change would affect their employment with the first plaintiff. The letter continued: "You will receive an offer of employment from AHL Investments Pty Ltd which will be subject to the transfer of business and will recognise your past service with Aussie Home Loans Limited including the transfer of all entitlements. When you accept this offer of employment with AHL Investments Pty Ltd, your employment will officially transfer from Aussie Home Loans Limited with effect from 1 January 2004. You will be deemed to agree to the transfer of your employment with AHL Investments Pty Ltd if you: (a) do not verbally or in writing inform us of your disagreement, or; (b) start work at your normal time on the first business day/shift after 1 January 2004. The terms and conditions of your employment with AHL Investments Pty Ltd will not differ from those with Aussie Home Loans and your service and/or entitlements will transfer with you. Confirmation of this is provided in the letter of offer from AHL Investments Pty Ltd which is attached." 46 The attached letter from AHL Investments Pty Ltd, also dated 28 November 2003, proposed that effective from 1 January 2004 "Aussie Home Loans Limited will be operated by AHL Investments Pty Ltd." It is not clear what this means. The letter went on to say that the defendant's role had been transferred to AHL Investments Pty Ltd on certain stated terms. Those terms included that the employee's role, duties, location and rate of pay would remain as they were at present; the existing arrangements for taking leave of any kind on or after 1 January 2004 would be honoured; and the usual arrangements for taking leave could be made with the employee's manager. The letter stated that the employee's conditions of employment would remain as they were at present and reference was made to the accrual of annual and long-service leave and other such entitlements including pro-rate sick leave. The letter said that there would be no change to the employee's superannuation scheme. The letter stated that: "Subject to any prior written agreement, this letter of offer supersedes any prior negotiation, understanding, communication or agreement between the parties, for example length of service and career path." 47 One of the conditions of the offer was that the first plaintiff finalise the transfer of its business to the second plaintiff. 48 The letter stated that the offer would be deemed to have been accepted by the employee unless he or she advised his or her manager or Human Resources, either verbally (sic) or in writing by 15 December 2003. The letter said that: "When you accept this offer effective 1 January 2004, you will be deemed to have resigned your employment with Aussie Home Loans and your employment with AHL Investments commences concurrently." 49 The only reference in the letter from AHL Investments Pty Ltd to the terms of employment with it being the same as they were with the first plaintiff, mutatis mutandis, was the statement that the "conditions of employment" would remain as they were at present. In my view the "conditions of employment" would not encompass terms of the contract with the first plaintiff, which applied after the termination of employment. There was nothing in the letter from the second plaintiff which referred to the terms of contract of employment with the first plaintiff which applied after the termination of employment by the first plaintiff. 50 However, the business of the first plaintiff was not transferred to the second plaintiff as at 1 January 2004. In February 2004, the employees were advised that the transfer had been delayed. I would not regard the letter from the first plaintiff as the giving of notice of termination of employment in accordance with the provision entitling it to terminate employment on one month's notice. Rather, what was proposed was that the employees, by accepting an offer of employment from AHL Investments Pty Ltd, could transfer their contract of employment to that company. What was proposed was a novation of the contracts of employment, which depended upon AHL Investments Pty Ltd making an unconditional offer of employment which was accepted by the employee. However, the second plaintiff's offer of employment was not unconditional. It was conditional, inter alia, upon the finalisation of the transfer of the first plaintiff's business to the second plaintiff. That did not occur. Accordingly, it was common ground that the contracts of employment of the defendants with the first plaintiff continued beyond 1 January 2004. 51 On 28 May 2004, Ms Harris wrote to each of the fifth to eighth defendants. She said: "I wrote to you in November 2003 about the transfer of Aussie Home Loans Limited to AHL Investments Pty Ltd and then again in February 2004 to inform you that transfer had been delayed. July 1 2004 has now been confirmed as the first operational date of AHL Investments Pty Ltd and I wanted to remind you of the impact of that change. As communicated to you previously, your employment from that date will be with AHL Investments Pty Ltd. The terms and conditions of your employment will not differ from those you currently have with Aussie Home Loans Limited and in addition, your current service will be recognised by the new entity and all entitlements will be transferred. You will be deemed to agree to the transfer of your employment to AHL Investments Pty Ltd if you (a) do not verbally or in writing inform us of your disagreement by June 11 2004 or; (b) start work at your normal time on 1 July 2004 (or earliest possible time after that)." 52 The question of whether a person can impose a contractual obligation upon another in the way envisaged by this email is not one which I need determine. (See Felthouse v Bindley (1862) 11 CB(NS) 869; 142 ER 1037; Carter & Harland, Contract Law in Australia, 4 ed para [229]). That is so, because the defendants accepted that from 1 July 2004, they ceased to be employed by the first plaintiff and became employed by the second plaintiff. Rather, the question is whether, by the terms of this correspondence, all of the terms of the contract of employment including the post-contractual restraints became terms of a new contract between the fifth to eighth defendants and the second plaintiff, such that from that time those defendants were subjected to a restraint against soliciting or endeavouring to entice away employees of the second plaintiff after the termination of their employment with it. There was no express reference in the correspondence to such post-contractual restraints. The only terms which were expressly incorporated as terms of the contracts between those defendants and the second plaintiff were "the terms and conditions of your employment". In my view, the terms included in that expression were the terms which regulated the fifth to eighth defendants' employment with the second plaintiff, i.e., what were their duties, their remuneration, their hours of work, their entitlements to annual leave, sick leave, long-service leave and superannuation, when their employment could be terminated, and the like. I do not consider that the post-contractual restraints are properly characterised as the terms and conditions of their employment. Rather they were what were characterised in some contracts as "post-employment obligations". 53 The plaintiffs have not established that the post-contractual restraints which had formerly been in the contracts between the fifth to eighth defendants and the first plaintiff, were incorporated as terms of their contracts of employment with the second plaintiff, as if the reference to "the Company" was a reference to the second plaintiff. 54 For these reasons, the claims against the fifth to eighth defendants fail. Conclusion 55 No separate claims were made against the first, second and fourth defendants. It is not clear to me why the fourth defendant was joined to the proceedings. No claim was made against him. The first and second defendants appear to have been joined as parties who might have been affected by the relief sought against the other defendants. 56 For these reasons, I dismiss the plaintiffs' claims for relief in the amended statement of claim. I order that the plaintiffs pay the defendants' costs. The exhibits may be returned after 28 days.

Aussie Home Loans v X Inc Services

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