The restraints - consideration
87 On this application, the defendant's arguments in reliance of Crowe Horwath are not sufficiently strong to have a material bearing on the outcome of this application. Crowe Horwath was a case involving materially different factual circumstances, where the employer was held to have repudiated the contract of employment as a result of its failure to consider the employee's entitlement to a performance bonus, and where the employee accepted the repudiation. The employee sent a letter to the employer terminating the contract, citing the employer's failure to fulfil its obligations to him under the employment contract. The Court of Appeal held that because the employment was brought to an end as a result of the employer's repudiatory conduct, the employer was not entitled to rely on the contractual restraints, citing a line of authority commencing with General Billposting Co Ltd v Atkinson [1909] AC 118 that has held that the wrongful summary dismissal of an employee is a repudiatory breach of contract, the effect of which is to discharge the innocent party, who accepted the breach, from all future obligations under the contract. Here, neither the legal nor any factual basis for the defendant's claim that she was denied an entitlement to an incentive payment was developed to a sufficient level of persuasion. The relevant terms of the employment agreement do not, on their face, appear to impose any obligation on the plaintiff to consider the defendant for a discretionary bonus. Nor, as discussed below, does the evidence support a sufficiently strong prima facie case that the defendant elected to terminate the employment agreement on the ground of the plaintiff's breach.
88 In relation to whether the purported termination of the employment agreement on 16 September 2022 amounted to a repudiation by the plaintiff, the evidence points to the plaintiff intending to bring the contract of employment to an end in accordance with its terms by making a payment in lieu of notice. In saying this, I am referring to facts objectively ascertained, rather than the plaintiff's subjective intention. The evidence is that on 24 April 2023 the defendant's solicitors made a demand for payment of the outstanding five weeks' notice of termination payment. The letter did not seek to characterise the underpayment as a repudiation of the employment agreement, or seek to accept the underpayment as a repudiation. On the same day, the plaintiff's solicitors acknowledged that eight weeks' notice had been payable, and advised that the deficit would be rectified. A few days later, on 28 April 2023, the plaintiff paid an additional five weeks' pay to the defendant. The evidence of Ms Whitehead is that the miscalculation of pay in lieu was an honest mistake owing to a misunderstanding on her part that the payment should have been calculated by reference to the whole term of the defendant's employment, rather than just employment under the employment agreement. This explanation is cogent, and was not challenged on this application. Whether the sum paid on 28 April 2023 was less than, or in excess of, the amount required to discharge the plaintiff's indebtedness to the defendant remains in dispute.
89 There are a number of other issues that arise that could not be the subject of full argument on this application and which are questions for trial. The first is whether the plaintiff's purported termination of the employment agreement on 16 September 2022 was ineffective to bring the contract to an end because there was an insufficient payment in lieu of notice. This issue may involve questions of construction of the employment agreement and directs attention to the decision of Besanko J in White v Norman [2012] FCA 33; 199 FCR 488 at [35]-[37] in which his Honour held that an underpayment of pay in lieu of notice might still be effective to bring about a termination of a contract of employment if there was a bona fide error and a willingness to recognise the error, citing DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423 (DTR Nominees) at 431-432 (Stephen, Mason and Jacobs JJ). If the purported termination of the contract was not effective, did the termination of the defendant's employment amount to a repudiation by the plaintiff of the employment agreement? This issue invites attention to DTR Nominees, which was cited in White v Norman. If the underpayment amounted to a repudiation, did this have the consequence that although the employment relationship was terminated, that the employment agreement remained on foot unless there was an acceptance of the repudiation by the defendant? Did the defendant by words or conduct convey an acceptance of the repudiation? Was the employment agreement brought to an end in some other way, such as the defendant simply accepting the termination? These questions invite attention to the issues that were determined by the majority of Supreme Court of the United Kingdom in Geys v Société Générale, London Branch [2012] UKSC 63; [2013] 1 AC 523 and to Automatic Fire Sprinklers Pty Ltd v Watson [1946] HCA 25; 72 CLR 435. See also: Letizia Building Co Pty Ltd v Redglow Asset Pty Ltd [2013] WASC 171 at [173] (Beech J) and the cases cited therein; Turner v The Australian Coal and Shale Employees' Federation [1984] FCA 301; 6 FCR 177 at 191-193 (Northrop, Keely and Gray JJ); and Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; 175 IR 414 at [24]-[30] (Brereton J).
90 For present purposes, it is sufficient to say that both parties appeared to argue this interlocutory application on the assumption that the employment agreement came to an end, by some means, in September 2022. The decision of Besanko J in White v Norman and my acceptance of the cogency of the evidence concerning the underpayment have the result that the plaintiff has a reasonable prima facie case that it did not evince an intention not to be bound by the employment agreement, but that it evinced an intention to terminate the contract lawfully by the payment of a sum in lieu of notice, and that it did so, albeit initially in an insufficient amount.
91 I now turn to the defendant's argument that the Court should not exercise its discretion to grant an injunction because of unclean hands on the part of the plaintiff. This argument was put in addition and in the alternative to the defendant's reliance on a claimed repudiation of the employment agreement by the plaintiff. The defendant focussed on the alleged improprieties in the manner in which the plaintiff dismissed her from her employment. As I stated at [32] and [88] above, the plaintiff initially paid the defendant three weeks' pay in lieu of notice upon her dismissal in September 2022, rather than the eight weeks' pay as required by clause 17 of the employment agreement, and paid the defendant an additional amount on 28 April 2023. The defendant submitted that this conduct of the plaintiff amounted to a breach of the employment agreement and potential contraventions of the Fair Work Act, including civil remedy provisions: Fair Work Act, s 44, s 117, s 323. The defendant submitted that the Court should not grant the plaintiff the equitable remedy of an injunction to enforce the restraint provisions in the employment agreement in circumstances where the plaintiff has itself not abided by the terms of the agreement. The defendant also briefly referred to her claim that she did not receive superannuation contributions from the plaintiff when she provided services to it as a contractor, prior to her engagement as an employee in 2018, but as I have said, this was undeveloped.
92 In support of the submission in relation to unclean hands, the defendant referred to the following statement of Gibbs J in Geraghty v Minter [1979] HCA 42; 142 CLR 177 at 187 -
The answer to the appellants' arguments that the respondents may be in default under the deed and yet enforce the restraint lies in the principles of equity. He who comes to equity must do equity, and parties who seek equitable relief by injunction to enforce a covenant in restraint of trade "cannot obtain such relief unless they allege and prove that they have performed their part of the bargain hitherto and are ready and able also to perform their part in the future",
(citations omitted)
93 The defendant also relied on the first instance decision of McDonald J in Crowe Horvath v Loone [2017] VSC 163; 266 IR 290. At [162]-[165] of that decision, McDonald J referred to his findings that the plaintiff employer had breached a provision of the employment agreement concerning the employee's entitlement to a bonus payment. McDonald J quoted from the passage of Gibbs J in Geraghty v Minter extracted above and held that, consistently with Gibbs J's reasoning, if the issue had arisen, his Honour would have refused to grant the employer an injunction to enforce the restraint of trade clauses in the employment agreement. McDonald J reasoned at [163] -
[the employer] failed to assess [the employee]'s bonus entitlement in accordance with the mandatory criteria prescribed by cl 7.5. The new incentive plan which was to be introduced for the 2017 financial year breached cl 7.5 insofar as it provided for the deferral of 20 per cent of [the employee]'s bonus entitlement for a period of three years. Notwithstanding its discretionary character, [the employee]'s right to have a bonus entitlement determined in accordance with the prescribed performance criteria and to have the bonus paid in full constituted an important element of the consideration which underpins the restraints of the Contract. It would be unfair if [the employer] was to receive the benefit of the restraints notwithstanding its failure to comply with significant contractual obligations.
94 In the event, it was unnecessary for McDonald J to have recourse to discretionary equitable principles to deny the employer an injunction. His Honour stated at [165] that the issue did not arise because of an earlier finding that the restraint of trade covenants did not survive the termination of the employment agreement by the employee's acceptance of the employer's repudiation.
95 In my view, on the evidence as it currently stands, the equitable principles relating to unclean hands are unlikely to have application to the present case in the way contended by the defendant. It is well established that the existence of some general or freestanding wrong on the part of a plaintiff is an insufficient basis for a court to refuse relief due to unclean hands. The plaintiff's impropriety "must have an immediate and necessary relation to the equity sued for": Meyers v Casey [1913] HCA 50; 17 CLR 90 at 123 (Isaacs J, Rich J agreeing); Karas v LK Law Pty Ltd [2023] FCAFC 15 at [96] (O'Callaghan and Colvin JJ). In this way, the unclean hands doctrine really means that a plaintiff should not be permitted to derive an advantage from its own wrong: Meyers v Casey at 124 (Isaacs J).
96 Here, the plaintiff exercised its right to terminate the employment agreement without reason, and to pay the defendant in lieu of her notice period. That right was conferred by the combined effect of subclauses 17(b) and (c) of the employment agreement. Although the plaintiff incorrectly calculated the amount owing to the defendant in lieu of her notice period, as I stated at [90] above, the plaintiff has a reasonable prima facie case that it did not thereby repudiate the employment agreement. In those circumstances, there is not a sufficient connection between the plaintiff's conduct in underpaying the defendant and the equity sued for. This case may be distinguished from the position in Crowe Horvath, where the employer's conduct constituted non-performance of a central obligation under the employment agreement, such that it would be unfair to allow the plaintiff to enforce the balance of the agreement. In the present case, the plaintiff's miscalculation of the defendant's notice period did not have the same effect.
97 Insofar as the defendant relied on the plaintiff's alleged non-compliance with provisions in the Fair Work Act and superannuation legislation in support of its clean hands defence, those submissions can be readily disposed of. The plaintiff seeks an injunction to enforce the restraint of trade clauses in the employment agreement. Those negative contractual obligations exist independently of the plaintiff's statutory obligations under the Fair Work Act and superannuation legislation. Therefore, even if the defendant's allegations that the plaintiff contravened its statutory obligations were made good, those contraventions would not have the requisite nexus to the relief sought by the plaintiff to engage the clean hands doctrine.
98 This brings me to the strength of the plaintiff's case that the restraints in subclauses 18(b)(iii) and (iv) are reasonable. I will deal with cl 18(b)(iii) first.
99 Ms Whitehead stated in her affidavit made 12 May 2023 that she negotiated the employment agreement with the defendant. Subclause 18(b)(iii) of the employment agreement rolls up a number of different concepts and obligations and its language is liable to confuse. To start with, and as I mentioned at [70] above, counsel for the plaintiff submitted that the word "client" was missing from the second line. I am prepared to accept for the purposes of this application that the word "client" should be read into the second line of subclause 18(b)(iii) as a matter of construction, so that the relevant limb refers to "...any person who was at any time an existing client...".
100 A principal submission advanced on behalf of the defendant was that the restraint in subclause 18(b)(iii) was not confined to clients with whom the defendant had personal contact, thereby making the restraint unreasonable as protection of the plaintiff's interest in customer connection. If that was the only purpose of the restraint, there may be some force in that argument. For instance, in Office Angels Ltd v Rainer-Thomas [1991] IRLR 214 a restraint of trade clause was premised on the basis that, "in the course of her employment by the company the employee has dealings with the clients of the company and in order to safeguard the company's goodwill the employee agrees...". In giving the reasons of the Court of Appeal, Sir Christopher Slade stated -
In a case where the wording of a covenant restricting competition by an employee after leaving his employer's service does not specifically state the interest of the employer which the covenant is intended to protect, the Court is, in my judgment, entitled to look both at that wording and the surrounding circumstances for the purpose of ascertaining that interest, by reference to what would, objectively, appear to have been the intentions of the parties. However, in a second category of case where the employer, who proffers the covenant for the employee's acceptance, chooses specifically to state the interest of the employer which the covenant is intended to protect, the employer is not, in my opinion, entitled thereafter to seek to justify the covenant by reference to some separate and additional interest which has not been specified.
101 In this application, there are no express words of the employment agreement that limit the purpose of the restraints in cl 18 to the protection of goodwill arising from actual customer connection by the defendant. Indeed, cl 18(b)(iii), although cast in terms of non-solicitation, might also be characterised as a limited form of non-competition, at least in relation to the plaintiff's clients and potential clients (as defined). The reasonableness of the restraints must be looked at objectively from the standpoint of the parties at the time the employment agreement was entered into, which include that the parties would likely have had in contemplation that the defendant might, during the term of her employment, have access to information identifying all of the plaintiff's clients, and would be involved in business development as the terms of the employment agreement indicate. All these activities would expose the defendant to the plaintiff's confidential information, being the collective body of information that identified the plaintiff's clients and their contact details, the plaintiff's pricing structure, and its business strategies. It is arguable that these activities would also have fostered connections between the defendant and persons who referred business to the plaintiff on a regular or ongoing basis. Employers may be entitled to protection, by reasonable post-employment restraints, not only against the unfair use of customer connections, but also against the use of confidential information which it is otherwise difficult to protect: see Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1478-1480 (Lord Denning MR) and 1485 (Megaw LJ); Woolworths Ltd v Olsen at [67].
102 There is a prima facie case that the potential for cross-over of clients between the different divisions of the plaintiff's business, and the defendant's role in the business, including business development, support a reasonable non-solicitation clause that covers all existing clients and all potential clients (as defined) as being reasonable: see Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at [33]-[34] (Brereton J); Business Seating (Renovations) Pty Ltd v Broad [1989] ICR 729 at 733 (Millett J); Allan Janes LLP v Johal [2006] 1 ICR 742 at [62]-[64] (Bernard Livesey QC); Isaac v Dargan Financial Pty Ltd [2018] NSWCA 163; 98 NSWLR 343 at [127] (Gleeson JA, Bathurst CJ and Beazley P agreeing).
103 As to the restraint area, the relevance of geographic limitations depends upon the type of business. A geographic limitation is much more relevant to a business requiring the personal attendance by clients at the business premises. Here, there was little attention given to the reasonableness of the geographic limitations for the likely reason that business communication by internet has no borders, and the business conducted by the plaintiff involved Commonwealth benefits and would likely have a national character to it. There is nothing about the restraint area that is material to the question whether there is a prima facie case that the restraint is enforceable.
104 As to the duration of the restraint, having regard to the interests that are protected, the considerations for evaluating reasonableness will include the time it might take the plaintiff to shore up its client connections following the termination of the defendant's employment, the currency of information that might be confidential, and the degree to which confidential information might remain in the defendant's memory before dissipating. The picture painted by the evidence is that the clients of the plaintiff are not like customers of milkmen or travelling salesmen. They will not necessarily return to the plaintiff regularly, or even annually, because their eligibility for government grants may fluctuate. The situation is similar to that described in Allan Janes LLP v Johal at [34] in relation to the practice of a solicitor. I am satisfied that there is a serious question to be tried that a period of 18 months is reasonable, having regard to the cyclical nature of the plaintiff's business that I described earlier in these reasons together with all the other circumstances. Weighing in the plaintiff's favour is that, although not decisive, the defendant did agree that concurrent periods including a period of 18 months was reasonable: see, Isaac v Dargan Financial Pty Ltd at [131]. And although each case will turn on its own facts and circumstances, the Victorian Court of Appeal upheld a restraint period of three years in Birdanco Nominees Pty Ltd v Money [2012] VSCA 64; 36 VR 341.
105 Otherwise, there are two reasons, each sufficient in itself, why I am not satisfied that the plaintiff has a sufficiently strong case to justify an interlocutory injunction to enforce subclause 18(b)(iii).
106 The first reason is the combination of the prohibition on an acceptance of an approach from a person, and the reference to "any person who was at any time an existing client". The reference to an "existing client" is liable to distract. When properly construed, an "existing client" is to be contrasted with a "Prospective Client or Customer". The scope of "existing client" within the provision is, due to the immediately preceding words: "was at any time …", unlimited. It would likely extend to any previous client, of any type, back to the time of the plaintiff's incorporation in 2013. Subclause 18(b)(iii) picks up a prohibition on accepting an approach, which extends beyond solicitation, from any person who at any time was a client of the plaintiff, in any capacity. There is a serious prospect that the breadth of this combination would be viewed at trial as being much more than is reasonable, in the context of the employment of the defendant, for the protection of the plaintiff's legitimate interests in client connections and its confidential information.
107 The second reason concerns the use of the defined term "competing business" (see [40] above). It was argued by the defendant that the inclusion in the second limb of the definition to competition with the plaintiff's business "or the business of any related body corporate of Avant" rendered the restraint in subclause 18(b)(iii) too wide because the second limb of the definition has the result that the restraint in subclause 18(b)(iii) goes beyond what is necessary for the protection of the plaintiff's legitimate interests. I accept that, at trial, there is a serious prospect that the inclusion of the reference to related bodies corporate broadens the scope of the restraint beyond what is reasonable.
108 As I mentioned at [79] above, counsel for the plaintiff accepted that the second limb of the definition of "competing business" was broad, but submitted that it could be severed using the blue pencil. That argument is weak. The employment agreement addressed severance in subclauses 18(d) and (e) (see [36] above). Those provisions indicate that the combinations of restraint period, restraint area, and restraint conduct set out in cl 18 are independent provisions and severable. In the face of the express provision as to severance in subclause 18(e), I am not satisfied that there is a sufficiently strong case that the definition of "competing business" in cl 2 gives rise to distinct obligations that can be severed. The position is therefore akin to that in Attwood v Lamont at 593 (Younger LJ), Galbally at [201]-[202], Just Group at [57], and Findex at [150] where it was held that the impugned obligations did not give rise to distinct covenants.
109 As to subclause 18(b)(iv), this is a non-interference restraint. Restraints on interference such as cl 18(b)(iv) are not uncommon: Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201; 66 ACSR 472; DP World Sydney Ltd v Guy [2016] NSWSC 1072; 262 IR 156; Isaac v Dargan Financial Pty Ltd [2018] NSWCA 163; 99 NSWLR 343; Your Nurse Australia Pty Ltd v Carpenter [2022] NSWSC 1788. There is a degree of overlap between the coverage of the non-solicitation obligation in subclause 18(b)(iii) (if enforceable), and the restraint on interference in subclause 18(b)(iv). However, subclause 18(b)(iv) does not suffer from some of the problems that attend subclause 18(b)(iii). While subclause 18(b)(iii) refers to "any person who was at any time an existing [client]", subclause 18(b)(iv) refers (emphasis added) to, "the relationship between Avant and its employees, clients and customers (including prospective clients and customers...". This suggests that subclause 18(b)(iv) is directed to an existing relationship: see, Isaac v Dargan Financial Pty Ltd at [89]. And subclause 18(b)(iv) does not incorporate the problematic defined term "competing business".
110 The evidence of the defendant's admitted approaches to clients is illustrative of the potential interference that the defendant might cause to an ongoing relationship between the plaintiff and a client, or a developing relationship that had been the subject of negotiations with a prospective client. Whether the defendant's conduct to date in approaching or accepting approaches from clients or prospective clients of the plaintiff interfered with an existing relationship will, in respect of each interaction, be a question of fact for trial.
111 I referred towards the outset of these reasons to the clarity required for injunctive orders and to the consideration that the defendant is entitled to know what she is enjoined from doing. The orders sought by the plaintiff and directed to subclause 18(b)(iv) of the employment agreement were as follows -
7. Restraint: An order restraining Ms Kiddle, until 16 March 2024, from interfering with the relationship between Avant Group and its customers (including prospective clients and customers (as defined in clause 2(l) of the Employment Agreement) in breach of clause 18(b)(iv) of the Employment Agreement by:
(a) making, or accepting an approach from, those clients who are listed in the definition of Confidential Information in Item 3 above; and/or
(b) providing services to those clients who are listed in the Confidential Information.
112 The definition of Confidential Information in proposed order 3 was as follows, although it contains a typographical error in referring only to orders 4-5, and not including order 7 -
3. For the purpose of orders 4-5, the term 'Confidential Information' means the following specific pieces of information insofar as they relate to active clients of Avant Group as detailed in Exhibit KEW-3 to the Second Whitehead Affidavit that are contained in the Excel spreadsheet named 'Tegan WIP-Tegan Surface' and/or Avant Group's Dynamics CRM database:
(a) Client names
(b) Client contact details
(c) Client grant status
(d) Client grant history
(e) Avant Group pricing
113 The Excel spreadsheet and the plaintiff's Dynamics CRM database were not in evidence, and the defendant denied on oath having any confidential information of the plaintiff. I would not make an order in the terms sought by the plaintiff which relies for its content on specified information in documents that the defendant says she does not have, and which the Court does not have.
114 For these reasons, I refuse the application for the interlocutory orders sought in relation the restraint provisions that were relied on by the plaintiff.