Employsure Ltd v McMurchy; Employsure Ltd v Kumaran

323 FSS Travel and Leisure Systems Ltd v Johnson [1998] IRLR 382 Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179 Harcus Sinclair LLP and another v Your Lawyers Ltd [2021] UKSC 32 at [47]-[49]; [2021] 3 WLR 598 Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 at 178; [1946] 1 All ER 350 Hodgson v Amcor Ltd [2012] VSC 94; (2012) 264 FLR 1 Hoh & Ors v Frosthollow Pty Ltd & Ors [2014] VSC 77 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64 IceTV v Ross [2007] NSWSC 635 Izaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCA 311 JMB (NSW) Pty Ltd v West [2020] NSWSC 1380 John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 Just Group Pty Ltd v Peck (2016) 264 IR 425; [2016] VSCA 334 Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 Lablemakers Group Pty Ltd v LL Force Pty Ltd (No 2) [2012] FCA 512 Lansing Linde Ltd v Kerr [1991] 1 WLR 251 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 Manildra Laboratories v Campbell [2009] NSWSC 987 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 McHugh v Australian Jockey Club Ltd (2014) 314 ALR 20 Medsara Pty Ltd v Sande [2005] NSWCA 40 Metcash Ltd v Jardim (No 3) (2010) 273 ALR 407; [2010] NSWSC 1096 Miles v Genesys Wealth Advisors Ltd (2009) 201 IR 1; [2009] NSWCA 25 News Life Media Pty Ltd v Janeke [2016] NSWSC 1835 Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535 Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; [2012] FCAFC 111 Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45 Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 Pittmore Pty Ltd v Chan; Chan v Tan (2020) 104 NSWLR 62; [2020] NSWCA 344 R v Byrnes (1995) 183 CLR 501; [1995] HCA 1 Red Bull Australia Pty Ltd v Stacey [2011] NSWSC 1212 Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 Scully (UK) Ltd v Lee [1998] IRLR 259 Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 Sidameno (No 456) Pty Ltd v Alexander [2011] NSWCA 418 Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 Snowden v Australian Mortgage Assist Pty Ltd [2019] NSWSC 1799 Stacks Taree v Marshall [No.2] [2010] NSWSC 77 Steadfast IRS Pty Ltd v Latchmi Mesuria [2020] NSWSC 947 The Littlewoods Organisations Ltd v Harris [1978] 1 All ER 1026 Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 414; [2008] NSWSC 852 Two Lands Services Pty Ltd v Cave [2000] NSWSC 14 United Australia Ltd v Barclays Bank Limited [1941] AC 1 Veda Advantage (Australia) Pty Ltd v de Beer [2016] NSWSC 37 Victoria University of Technology v Wilson (2004) 60 IPR 392; [2004] VSC 33 WA Fork Truck Distributors Pty Ltd v Jones [2003] WASC 102 Weldon & Co v Harbinson [2000] NSWSC 272 Woolworths v Olson [2004] NSWCA 372 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Category: Principal judgment Parties: 2021/16210: Employsure Pty Ltd (plaintiff) David McMurchy (first defendant) Elmo Software Ltd (second defendant)

2021/53385: Employsure Pty Ltd (plaintiff) Arumugam Kumaran (first defendant) Elmo Software Ltd (second defendant) Representation: Counsel: P J Brereton SC, P Moorhouse, J Simpkins (for the plaintiff) I M Neil SC, Ms P Lowton (for the defendants)

Solicitors: Kardos Scanlan (plaintiff) HWL Ebsworths (defendants) File Number(s): 2021/16210 2021/53385 Publication restriction: n/a

Judgment

1. These proceedings involve alleged breaches by two former employees (Mr McMurchy and Mr Kumaran) of the Plaintiff, Employsure Pty Ltd, for actual and threatened breaches of contract.
2. They are the First Defendant in each proceeding. They both left the Plaintiff to take up employment with the Second Defendant, ELMO Software Ltd, which it is asserted is a competitor of the Plaintiff.
3. As against Mr McMurchy it is alleged that he also breached his contract and his fiduciary duty to the Plaintiff while still employed by commencing employment with the Second Defendant and taking steps to recruit Mr Kumaran.
4. It is asserted that the Second Defendant is liable as having induced Mr McMurchy to breach his contract with the Plaintiff and for knowingly assisting Mr McMurchy's breach of fiduciary duty.
5. The proceedings also involved claims to enforce post-employment restraints and for injunctive relief.

The Relevant Businesses

1. The Plaintiff is primarily a human resources and workplace health and safety service business operating throughout Australia and New Zealand.
2. It offers a product which involves the sale and support of a software product called 'BrightHR' and 'BrightSafe'.
3. The software was initially developed in the United Kingdom, and is licenced exclusively to the Plaintiff for sales in Australia and New Zealand by BrightHR Limited, a UK company that is also owned by Employsure's parent company (CB1/55 at [16], CB1/57 at [23]).
4. This software supports human resources and workplace health and safety and has been sold since October 2019. The particular software was developed to allow small to medium size enterprises with up to 50 employees to manage and automate their human resources function (CB 1/56 at [19]).
5. The Plaintiff seeks to sell Bright to all new customers who sign up for its product offerings, although subscribers may request not to include the Bright software (CB 1/58-59 at [28]). Those who request to remove it pay a reduced price (Confidential Transcript of Day Two at T.40/20).
6. As at the end of February 2021, the Plaintiff had 27,316 subscribers, with 10,311 of those having access to the Bright software as part of their subscription (CB 1/58 at [26]; CB 5/1568).
7. In addition to seeking to sell the Bright software products to all new customers that sign up to the Plaintiff's business, it also sells the Bright software to its pre-existing (pre-October 2019) customers (CB 1/194 at [7]-[8]).
8. On the other hand, the Second Defendant is a software provider. It describes itself as a "leading provider of cloud human resources, payroll and rostering time software in Australia and New Zealand" (CB 3/813).
9. In a media release in October 2020 the Second Defendant announced that it had acquired the "UK HR platform Breathe". It was described in the media release as a self-service HR platform which would provide the Second Defendant with entry into the small business market for organisations with less than 50 employees (CBB 3/741).
10. The Second Defendant launched the Breathe software in Australia during February 2021 (CB 1/155 at [38]; T.88/5-13). This process involved a "soft launch" date of 4 February (CB 1/155 at [38]), the launching of a new website on or around 11 February (CB 1/77 at [122]) and the active selling of Breathe since 21 February (T.68/35).

The McMurchy Proceedings

1. The McMurchy proceedings commenced on 19 January 2021.
2. On 21 January 2021, Mr McMurchy gave certain undertakings, including that until further order or until after 5 February 2021 (later extended to 8 February 2021) he would not perform any work or duties for the Second Defendant (CB 5/1621).
3. On 8 February 2021, Parker J granted interlocutory relief, making orders (CB 5/1623) the reasons for which are set out in Employsure Pty Ltd v McMurchy [2021] NSWSC 139. The orders included: 1. that until 14 March 2021 or further order Mr McMurchy be restrained from performing any work or duties for, or at the direction of the Second Defendant; and 2. adjourning the balance of Employsure's application for interlocutory relief to 4 March 2021.
4. These orders also record an undertaking given by Mr McMurchy not to use or disclose or allow to be used or disclosed Employsure's confidential information. Therefore, the Plaintiff does not seek any further relief against Mr McMurchy in relation to his duties of confidence.
5. The matter was listed on 15 March 2021 (with the Kumaran proceedings) for hearing the balance of the Plaintiff's application for interlocutory relief. On that date, after a further interlocutory hearing, Parker J made the following orders (CB 5/1630): 2 ORDERS that until 5pm on the final day of the trial or until further Order, the first defendant be restrained from performing any work or duties for, or at the direction of, the second defendant or Breathe Software Pty Ltd and from attending any work place under the control of the second defendant or Breathe Software Pty Ltd. 3 ORDERS that until 5pm on the final day of the trial or until further Order, the first defendant be restrained from attempting to entice away or solicit any employee of Employsure or any Related Body Corporate.
6. These orders remain in place. The Plaintiff has indicated that if the Court were to reserve judgment in this matter, it would seek an order extending the injunction until judgment is given. On 10 June 2021, I made those orders.
7. The Plaintiff also seeks final orders, as outlined in its draft of 9 June 2021, restraining Mr McMurchy up to and including 11 January 2022 from working for a business or prospective business in competition with the Plaintiff, including the Second Defendant (Order 6). It also seeks an order that up to and including 11 January 2022, Mr McMurchy be restrained from attempting to entice away or solicit any employee of the Plaintiff or any related body corporate (Order 7).

The Kumaran Proceedings

1. The Kumaran proceedings were commenced on 24 February 2021.
2. The matter was listed on 4 March 2021 for hearing of the Plaintiff's application for interlocutory relief but did not proceed on that day. Ultimately, the matter was listed on 15 March 2021, with the McMurchy proceedings, for hearing of the Plaintiff's application for interlocutory relief.
3. On 4 March 2021, Mr Kumaran gave undertakings not to use or disclose the Plaintiff's confidential information. Therefore, the Plaintiff does not seek any further relief in respect of his duties of confidence.
4. On 15 March 2021, Parker J made the following order (CB 5/1628): 2 ORDERS that until 5pm on the final day of the trial or until further Order, the first defendant be restrained from the time and date of these orders being entered on 15 March 2021 from performing any work or duties for, or at the direction of, the second defendant or Breathe Software Pty Ltd and from attending any work place under the control of the second defendant or Breathe Software Pty Ltd.
5. The order remained in place at the time of the hearing and, on application by the Plaintiff, on 10 June 2021 I extended this order until judgment is delivered in this matter.
6. The Plaintiff also seeks final orders, as outlined in its draft of 9 June 2021, restraining Mr Kumaran until 11 February 2022 from being engaged with any other business in competition with the Plaintiff, including the Second Defendant.

Some General Observations

1. Much of the basic factual material is not in dispute. Of course, Mr McMurchy's contact with Mr Kumaran at the relevant time is not only in dispute but the parties are unsurprisingly at odds as to what inferences should or not be drawn.
2. The status of Mr McMurchy's contract is logically the first issue to be addressed.
3. The next question concerns the extent to which by reason of his contractual or other duties he did or did not breach those duties and the consequences, if any, of those breaches. Inextricably bound up with those questions however is the extent to which it can be said that the Plaintiff and the Second Defendant are in competition one with the other.

Mr McMurchy and Mr Kumaran's employment with Employsure

1. Mr McMurchy commenced employment with the Plaintiff in January 2015, under the terms set out in a letter of offer dated 23 January 2015, which included a schedule of standard terms (the "2015 McMurchy Contract"). A copy of the 2015 McMurchy Contract signed by Mr McMurchy is at CB 3/553-559.
2. With effect from 1 April 2018, Mr McMurchy was promoted to the role of Outbound Sales Manager. It was in that context that in February 2018, Employsure and Mr McMurchy entered into a new employment agreement (the "2018 McMurchy Contract"). A copy of the 2018 McMurchy Contract, dated 20 February 2018 and signed by both parties, can be found at CB 3/566-578.
3. There is a dispute about Mr McMurchy's precise status following his 2018 promotion. However, it is asserted by the Plaintiff he held a senior position as a result of the promotion and was given confidential information as a result.
4. Mr McMurchy subsequently agreed to a total of five contract variation letters recording changes to his employment agreement. Three of the variation letters merely recorded a change to the person to whom Mr McMurchy reported (CB 3/584, CB 3/591 and CB 3/721). Another recorded a minor change to his job title (CB 3/709).
5. A more significant change occurred in June 2019, when Mr McMurchy moved into the new role of 'Manager, BrightHR', and at that time there were also changes to his salary and bonus arrangements (CB 3/592-594).
6. In June 2019, Mr McMurchy travelled to the United Kingdom in order to learn about and understand the BrightHR software and business (which was already operating in the UK) in advance of the BrightHR software being launched in Australia and New Zealand. Between June 2019 and October 2019 Mr McMurchy was setting up the systems and processes that were required for the October 2019 launch of BrightHR in Australia and New Zealand.
7. From the time Employsure's BrightHR software product was launched until the end of his employment with Employsure, Mr McMurchy held the position of 'Manager, BrightHR' (later renamed 'Manager, Bright' after the introduction of the BrightSafe software product). The purpose of his position was to "support and deliver the vision, strategy and plan for Employsure's BrightHR function" (CB 3/595 and CB 3/710).

Mr McMurchy and Mr Kumaran's employment with the Second Defendant

1. On 16 November 2020, Mr McMurchy applied for a position with the Second Defendant (CB 3/754A). On 11 December 2020, he accepted a role with the Second Defendant in the position of 'Sales & Customer Success Director, Breathe". Employsure was unaware of these matters at the time.
2. On 14 December 2020, Mr McMurchy gave Employsure a purported letter of resignation (CB 3/783-784). The letter said that his last day of employment would be 11 January 2021, thus giving 4 weeks' notice of his proposed departure. The Plaintiff contends that was less than the 3 months' notice required by the 2018 McMurchy Contract, and as such that letter was not effective to terminate Mr McMurchy's employment contract.
3. On 15 and 16 December 2020, Mr McMurchy's manager informed him that he was required by his employment contract to give 3 months' notice (CB 3/789 and CB 3/792). Mr McMurchy's response was to confirm that his last day of employment would be 11 January 2021 (CB 3/801).
4. Mr McMurchy does not contend that he was told by Employsure that it would accept him giving 4 weeks' notice, or that he was told by Employsure that his purported notice was effective to mean that his employment would end on 11 January 2021.
5. There were subsequent discussions about attempting to have Mr McMurchy remain with Employsure, but no agreement was reached.
6. On 8 January 2021, the Plaintiff's lawyers, Kardos Scanlan, wrote to Mr McMurchy reminding him of his contractual obligations to Employsure, and stated that his purported notice of termination was not effective to bring his employment to an end and that he remained employed with Employsure. The letter also noted that the Second Defendant was a direct competitor with Employsure's Bright software, and sought undertakings to confirm that he would comply with his contractual obligations to Employsure (CB 3/913-942).
7. There was then correspondence between the parties' solicitors, which included the following exchange. 1. On 11 January 2021 Mills Oakley, acting for Mr McMurchy, wrote to Kardos Scanlan and said that Mr McMurchy did not regard himself as employed by Employsure, and referred to his "new employment with the Second Defendant Software Limited". That letter did not provide any undertakings by or on behalf of Mr McMurchy (CB 3/913-942). 2. On 12 January 2021 Kardos Scanlan wrote to Mills Oakley (CB 3/950-954). By that letter Employsure: 1. gave Mr McMurchy 3 months' notice of the termination of his employment, to bring his employment to an end on 12 April 2021; and 2. directed Mr McMurchy to not attend the Employsure office and not undertake any work other than as directed, but to remain available during business hours to respond to queries or perform duties as requested (as per cl 19.3 of the 2018 Employment Agreement).

The Relevant Documents

1. Below is a brief summary of some of the more important documents relied upon in the proceedings.

Variation Letter

1. First was the letter dated 22 March 2019 which varied the 2018 McMurchy Contract (CB 3/591). The letter states as follows: Amendment to terms and conditions of employment Your contract of employment dated 23 January 2015 (Employment Agreement) is being amended as follows: Line Manager you will report to the head of business sales in this role, unless notified otherwise. All other terms and conditions of your employment remain unaltered and your Employment Agreement otherwise continues to apply, however, for the avoidance of doubt, in the event of any inconsistency between the terms stated above and your existing Employment Agreement, these terms will prevail. Please confirm your agreement to this amendment by signing a copy of this letter and returning it to Talent. …

Mr McMurchy's Notice

1. Second was Mr McMurchy's purported notice of 14 December 2020 (CB 3/784) which stated: Please accept this letter as formal notice of my resignation from my position as Manager, Bright at Employsure Pty Ltd. My last day of employment will be Monday, January 11th, 2021.

The 2015 McMurchy Contract

1. The post-employment clause (CB 3/554) in the 2015 McMurchy Contract provides that Mr McMurchy must not, after termination of employment: engage or prepare to engage (directly or indirectly) in a business that competes with the [Employsure]".
2. The restraint is expressed to apply for 12 months, and throughout Australia.

The 2018 McMurchy Contract

1. The next document was the 2018 McMurchy Contract, in which several clauses were referenced.
2. Clause 5.1 (CB 3/569) included an obligation for Mr McMurchy to: devote the whole of [his] time, attention and skill during normal business hours … to [his] duties for [Employsure] (cl.5.1(a))
3. Clause 16 (CB 3/571) expressly contemplated that the employee may receive confidential information and imposes obligations about what must and must not be done in respect of confidential information.
4. Clause 18.2 (CB 3/574-575) provided: Without the prior written consent of [Employsure], the Employee must not, while employed by [Employsure], be engaged or interested in any other business or occupation (whether paid or unpaid) … that, in the reasonable opinion of [Employsure], may hinder or interfere with the performance of the Employee's duties.
5. Clause 19.1 (CB 2/573) provided that the agreement may be terminated in writing at any time by either party, and with the period of notice set out in item 9 of the Schedule. Item 9 (CB 3/578) provides that the period of notice is three months.
6. The post-employment restraint in the 2018 McMurchy Contract was outlined in cl.20 (CB 3/574) which provided that Mr McMurchy "agrees not to carry on or be engaged, concerned or interested, directly or indirectly", whether as an employee or otherwise: … in any business or prospective business in competition with [Employsure] at the time of termination of employment.
7. The restraint is expressed to apply for up to 12 months, and throughout Australia

The Kumaran Contract

1. The Kumaran Contract included a term entitled "Restraint". The introductory paragraph to this clause states (at CB 3/563): During your employment you may be associated with our Clients, Intermediaries, and Employees and you may also have access to our confidential information. By accepting this offer of employment you acknowledge that it is commercially important to us that you are restricted in the way you are entitled to deal with such person or entities and any use of confidential information…
2. It also includes the following provision (at CB 3/564): … you will not … be directly or indirectly engaged, concerned or interested with any other person or bu siness that is wholly or partly in competition (or is preparing to be wholly or partly in competition) with the business carried out by [The Plaintiff] …
3. This clause is expressed to apply for up to 12 months, and throughout Australia.

Construction of Contracts

1. The principles governing the construction of commercial contracts were summarised recently by Gleeson J in De L'Isle v Knight [2021] NSWSC 809 as follows: [74] …An objective approach is to be adopted in determining the rights and liabilities of parties to a contract. The contract is to be construed by what a reasonable businessperson would understand it to mean. That requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] and [78]. [75] Regard can be had to the surrounding circumstances objectively known to the parties: Codelfa at 352 (Mason J). However, care must be exercised in considering evidence of negotiations between the parties. Evidence of negotiations is inadmissible for the purpose of construction insofar as it is no more than evidence of what the individual parties were subjectively trying to do when they negotiated the language of their agreement. Negotiations may be considered only to the extent that they identify mutually known facts which form part of the background to the transaction: Codelfa at 354. As Heydon and Crennan JJ said in Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [98]: … evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of "surrounding circumstances". (Citation omitted.)
2. See also the summary of Bathurst CJ (with whom Macfarlan and Meagher JJA agreed) in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [52].

Rectification at Common Law and in Equity

1. Rectification may be undertaken at law or in equity, both of which are discussed in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 ("Seymour Whyte") at [6] 322 to [19] 325.
2. Where a Court can discern the parties' intention from the factual and legal context, the Court can supply, omit or correct the words in the document to avoid absurdity or inconsistency, and in these cases, rectification is not required (Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 ("Fitzgerald v Masters") at 426 - 427 and 437; Seymour Whyte at [6]-[10]; see also James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCA 311 ("James Adam") at [20]).
3. The two conditions necessary for Court to correct contractual language to avoid absurdity or inconsistency are firstly, that the literal meaning of the contractual words is an absurdity or is inconsistent, and secondly, it is self-evident what the parties' objective intention was (Seymour Whyte at [8]-[10]; James Adam at [20]).
4. For equitable rectification to be available there must be an actual common intention of the parties which, through a common mistake, was not reflected in the document (Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [46], [103], [104]; Seymour Whyte at [12]).

Fiduciary obligations

1. A fiduciary, including an employee, agrees to act for or on behalf of, or in the interests of, another person in the exercise of a power or discretion that will affect the interests of that other person in a legal or practical sense (see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64 ("Hospital Products")).
2. An employee must not work for another employer if the other employment is inconsistent with the first employment (Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 at 178; [1946] 1 All ER 350 at 356) or "could conflict with" the first employment (Victoria University of Technology v Wilson (2004) 60 IPR 392; [2004] VSC 33 (Nettle J) at [14]).
3. An employee will be in breach of duties owed to their employer if they actively entice an employee to leave to come to a new enterprise. In Lablemakers Group Pty Ltd v LL Force Pty Ltd (No 2) [2012] FCA 512 ("Lablemakers") at [115] Tracey J said: A conflict will […] arise if the employee seeks to persuade fellow employees to resign their employment and accept positions in the new business: see Warman International at 556, 566. To act in this way is to breach an employee's duty "not to improperly use his position to cause detriment to his employer": see WA Fork Truck Distributors at [67].
4. The manner of approaching employees and whether such approaches constitute a breach of contract or fiduciary duties, depends upon the manner in which the approach is made (WA Fork Truck Distributors Pty Ltd v Jones [2003] WASC 102 ("WA Fork Truck") at [61]). It can constitute a breach of fiduciary duties of good faith (WA Fork Truck at [67]).

Restraint of Trade

1. In Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45, the High Court stated (at [14]) that the question of whether there is a "restraint" is to be answered having regard to the practical working of the alleged restraint.
2. At common law, a restraint of trade is contrary to public policy and void (citing Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535 at 565 per Lord Macnaghten, cited in Agha v Devine Real Estate Concord Pty Ltd [2021] NSWCA 29 at [164]; see also Harcus Sinclair LLP and another v Your Lawyers Ltd [2021] UKSC 32 at [47]-[49]; [2021] 3 WLR 598). Under s.4(1) of the Restraints of Trade Act 1976 (NSW) ("Restraints Act"), however, a restraint is valid to the extent to which it is not against public policy even if not in severable terms (see also Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 ("Koops Martin") at [26]-[27] per Brereton J). The effect of the Restraints Act is to allow the restraint to be read down so as to be valid to the extent necessary only to capture the conduct of the offending party, if a restraint to that extent would have been valid (Steadfast IRS Pty Ltd v Latchmi Mesuria [2020] NSWSC 947 ("Steadfast") at [43] per Sackar J). Irrespective of whether an agreement is unreasonable as between the parties, if it is unreasonable in the public interest it will be void for that reason (Belflora Pty Ltd v Vinflora Pty Ltd [2021] NSWCA 178 ("Belflora") per Bathurst CJ at [33]; Brereton JA at [59] and Emmett AJA at [62]).
3. The burden of justifying the restraint's reasonableness lies on the party seeking to impose it (Adamson v New South Wales Rugby League Limited (1981) 27 FCR 535; [1991] FCA 8 at 554 per Hill J).
4. In Belflora, Brereton JA commented (at [46]) that: [w]hether a restraint is reasonable having regard to the interests of the parties depends on two, albeit related, considerations: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest.
5. While the doctrine of restraint of trade applies to restrictions imposed during the currency of a contract, the pendency of the contract will usually be sufficient justification of their reasonableness (Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 414; [2008] NSWSC 852 ("Tullett Prebon") at [40], [45]; cf Metcash Ltd v Jardim (No 3) (2010) 273 ALR 407; [2010] NSWSC 1096 ("Metcash") at [43]).

What does "in competition" mean?

1. The words "in competition with" one would expect commonly arises in contracts of this sort, however, the particular combination of words has to be viewed in the context of the particular contract and its context.
2. In News Life Media Pty Ltd v Janeke [2016] NSWSC 1835 ("News Life Media"), the defendant's former employer sought to enforce a restraint of trade clause in the defendant's contract. One of the questions in the case involved a determination of what was meant by the phrase "in competition with" in the contract. The Court noted (at [30]) that the construction to be given to this phrase must depend on the function the relevant clause was intended to perform in the context of the overall contract. What was sought to be prevented was the exploitation of confidential information by commercial rivals to the plaintiff, indicating the focus was on competition in a commercial context or sense (at [39]). Therefore, McDougall J held (at [39) that: … in assessing the question of competition, it is necessary to look at the extent to which there is competition in some particular market. In that context, concepts of substitutability may well be significant. There was no evidence directed specifically to competition in that sense, as opposed to competition in the sense of commercial rivalry.
3. In News Life Media the words "in competition with" were combined with the phrase "parts of the business". This combination meant that the clause operated to prevent the defendant from engaging in work in competition with the part of the business of the plaintiff for which she had worked in the relevant period (at [43]).
4. In Veda Advantage (Australia) Pty Ltd v de Beer [2016] NSWSC 37 ("Veda Advantage"), Black J (at [28]) held that the ordinary meaning of the word "competitor": …should be understood in the sense indicated in Sea Containers Ltd v ICT Pty Ltd (Supreme Court (NSW), O'Keefe CJ Comm D, 27 October 1994, unrep) where O'Keefe CJ Comm D, observed that: "[i]n ordinary use the verb 'to compete' [involves] the notion of seeking or striving for something in opposition to others and the word competitor conveys the notion of a rival, including a rival in trade." I accept that a "competitor", in ordinary usage, may also include an entity that sells similar products to a second entity so as to compete with it seriously (JD Heydon, The Restraint of Trade Doctrine, 3rd ed 2008, LexisNexis Butterworths at 305) or which is operating or about to operate a business in competition with a second entity (ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 661) or which might pose a real commercial threat to the first entity (Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111; (2012) 205 FCR 187 at [32], [44]) or where there is 'substitution between the products and sources of supply' of the two entities (John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 at [18]).

Tort of inducing breach of contract

1. In Flightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323 ("Flightvision"), the Court (Sheller, Stein and Giles JJA) summarised the test for the tort of inducing breach of contract at 509 [159] to 512 [171]). Their Honours stated the position as follows (at 512 [171]): …The plaintiff must prove that the defendant intentionally procured the breach. The requirement that the defendant have sufficient knowledge of the contract is a requirement that he have sufficient knowledge to ground an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of the necessary intention.
2. See also Pittmore Pty Ltd v Chan; Chan v Tan (2020) 104 NSWLR 62; [2020] NSWCA 344 at 99 [176].
3. The concepts of "knowledge" and "intention" are intertwined. As Lindgren J noted in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26; [1995] FCA 481 (at 37), "a person's 'knowledge' that what he is inducing will constitute a breach of contract and his 'intention' to induce a breach of contract by what he is doing refer to one and the same thing".
4. Their Honours in Flightvision also commented on the issue of loss and causation at 534 [280] to 535 [281], finding that: [280] There is a loss, and where the defendant induced the breach of contract the finding of inducement means that it was caused by the defendant inducing the breach of contract. The loss flowing from the breach of contract was caused by the inducing even if a contributing cause of the loss was the contract breaker's disinclination to perform the contract. [281] our view, any question is one of causation. A finding of inducing breach of contract carries with it a finding that the defendant's actions caused the breach of contract and the loss which flowed. It does not matter that the contract breaker yields readily or before the inducement was willing to break the contract: Woolley v Dunford (1972) 3 SASR 243 at 290-291; Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots [1991] 1 VR 637 at 659. But it may be possible for the defendant to establish, according to the commonsense notion of causation in March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, that inducing the breach of contract was not the cause of the loss because the loss would have been suffered in any event.

Submissions of the Parties in the McMurchy Proceedings

1. As is obvious from the submissions recorded below, there were numerous factual and legal disputes in what is a complex case. It is important therefore that I record in my view comprehensively the respective factual and legal submissions.

Plaintiff's Submissions

1. The Plaintiff's primary case in relation to Mr McMurchy is that his purported resignation on 14 December 2020 was not effective to terminate his employment contract, and that the termination of his employment contract occurred by means of the three months' notice given by the Plaintiff on 12 January 2021, which took effect on 12 April 2021.

The 2018 McMurchy Contract applied

1. The first issue identified by the Plaintiff was whether at the time Mr McMurchy gave his purported notice of termination on 14 December 2020, his employment was governed by the 2018 McMurchy Contract, or as Mr McMurchy argues, the 2015 McMurchy Contract. This issue then determines whether Mr McMurchy was required to give either 3 months' or 4 weeks' notice of termination.
2. It is not in dispute that Mr McMurchy and the Plaintiff entered into the 2018 McMurchy Contract, which took effect from 1 April 2018. The Plaintiff therefore submits that there can be doubt that upon entry to the 2018 Contract, the 2015 McMurchy Contract was wholly replaced. The 2018 McMurchy Contract expressly states that it supersedes the 2015 McMurchy Contract (cl.2.3 at CB 3/569) and that any previous agreements cease to have effect.
3. The first amendment to the 2018 McMurchy Contract occurred on or about 22 November 2018 (CB 3/584), when Mr McMurchy signed an agreement letter dated 15 November 2018. By this amendment, the 2018 McMurchy Contract was varied to change Mr McMurchy's line of report and is not relied on by Mr McMurchy as having the effect of reinstating the 2015 McMurchy Contract.
4. The critical amendment letter is that dated 22 March 2019 as extracted above at [64] (CB 3/591). This is the only "variation" that Mr McMurchy relies on in his evidence (McMurchy affidavit, 3 April 2021 at [66]-[69]).
5. The Plaintiff argued that the only consequence of this amendment is that the 2018 McMurchy Contract, as amended by the 15 November 2018 letter, was further amended to change Mr McMurchy's line of report.
6. The Plaintiff submitted that if the parties had intended to bring the 2018 McMurchy Contract to an end and reinstate the 2015 McMurchy contract, very different words would have been required. There is obvious absurdity in referring "Your contract of employment dated 23 January 2015….is being amended as follows..." at a time when the 2015 Employment Contract had ceased to operate and been replaced by the 2018 McMurchy contract.
7. The Plaintiff argued that the language of the 22 March 2019 letter clearly indicates the parties' objective intention was that the variation letters were effecting a variation to the existing employment agreement. The letter is headed "Amendment to terms and conditions of employment" and refers in multiple places to being an "amendment". It also states that "all other terms and conditions of your employment remain unaltered and your Employment Agreement otherwise continues to apply…" (CB 3/591; CB 3/592; CB 3/709; CB 3/721). The variation letter also refers to the "existing Employment Agreement" as applying other than where inconsistent with the variation.

The 2018 McMurchy Contract continued until 12 April 2021

1. The second issue the Plaintiff considered was whether, assuming it was correct that the 2018 McMurchy Contract applied in December 2020, the notice given by Mr McMurchy on 14 December 2020 was effective notice so as to bring his contract to an end on 14 March 2021 (after 3 months).
2. The Plaintiff contended that Mr McMurchy's purported notice was not effective to terminate the contract (CB 3/784, extracted above at [65]).
3. Mr McMurchy gave 4 weeks' notice in circumstances where cl.19.1 required 3 months.
4. In response to his manager telling him twice on 15 December 2020 that he was required to give 3 months' notice (CB 3/789 and 792), Mr McMurchy confirmed on 17 December 2020 that his "intended last day of employment still stands as January 11th 2021" (CB 3/801).
5. The Plaintiff did not agree to a shorter period of notice than the required 3 months. It did not meet the requirement of cl.19.1 of 3 months' notice and did not operate to terminate his employment contract.
6. The defendants adopt as correct Parker J's tentative reasoning on the requirement of notice in Employsure v McMurchy [2021] NSWSC 139 ("Employsure v McMurchy") at [58]-[61]. At [58], his Honour made reference to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 ("Mannai") at 768 to assert that while notice must comply with the relevant terms of the contract, beyond that the only requirement is that the notice must convey with a sufficient degree of clarity that the contractual power is being exercised.
7. The Plaintiff argued that the facts of Mannai were very different from those of the present proceedings. Mannai concerned notice given by a tenant to a landlord. The relevant contractual clause allowed termination by not less than 6 months' notice in writing to expire on the third anniversary of the commencement of the lease. The tenant gave 6 months' notice in writing, expressly referring to the clause of the contract pursuant to which such notice was able to be given, but erred in stating that the lease would end on 12 January 1995, whereas the third anniversary of the commencement of the lease was 13 January 1995. The majority of the House of Lords held, considering the matter objectively, that it would have been obvious to a reasonable recipient that the tenant wished to exercise the contractual power to end the lease on the third anniversary of the commencement of the lease (at 768A, 773C, 774H-775A, 783A). There was no respect in which the tenant had not complied with the requirements of the clause allowing it to give notice. The tenant referred in its notice to the correct clause in the lease and it gave the requisite notice of not less than 6 months, but merely made an error in stating that the lease would determine on 12 January 1995, when the correct date was 13 January 1995. By way of contrast, Mr McMurchy did not give the required period of notice (3 months).

Restraints of trade during an employment contract

1. The next issue was whether Mr McMurchy was in breach of the 2018 McMurchy Contract in taking up his position with the Second Defendant in the period up to the termination of his employment contract with the Plaintiff. This assumes that the 2018 McMurchy Contract governed his employment and did not terminate on 11 January, and that from 12 January 2021 (and until 12 April 2021, or alternatively 14 March 2021), Mr McMurchy remained employed by the Plaintiff.
2. The Plaintiff submitted that when Mr McMurchy commenced employment with the Second Defendant on 19 January 2021 he did so in breach of his contract with the Plaintiff.
3. Clause 18.2 of the 2018 McMurchy Contract prevented Mr McMurchy from working for another business while he remained employed and during his notice period (extracted above at [71] of the "background facts"). Clause 5.1, which sets out Mr McMurchy's principal duties, is also relevant (extracted above at [69]).
4. The fact that Mr McMurchy was still employed and entitled to be paid during his contractual notice period goes to the reasonableness of the restraint while the contract is on foot: Metcash at [47], [48].
5. The Plaintiff cited BGC Partners (Australia) Pty Limited v Hickey (2016) 259 IR 318; [2016] NSWSC 90 ("BGC Partners"), where the Court held that there was nothing unreasonable about a restraint to protect legitimate interests for so long as the employee was bound by the employment contract (at [97]), although the Court went on, as a matter of discretion, to limit an injunction requiring compliance with the employee's contractual obligations not to work for any other business to a period of 9 months after the employee actually ceased working. The Plaintiff argued that similarly it is reasonable for it to protect its legitimate interests in its confidential information, and its interest in having Mr McMurchy available to work or respond to queries as directed.
6. Therefore, the Plaintiff was entitled to direct Mr McMurchy to refrain from taking up employment with the Second Defendant at the time that he did, meaning that he was in breach of cl.5.19(a) and cl.18.2 of his employment contract.
7. The Plaintiff addressed each of Mr McMurchy's counter-arguments on this issue in turn, beginning by restating its position that the 2018 McMurchy Contract is the relevant one.

Breach of fidelity and fiduciary duty

1. The Plaintiff submitted that by commencing employment with the Second Defendant while still employed and in his notice period, Mr McMurchy also acted in breach of his express and implied contractual duty of fidelity, and the 'no conflict' aspect of his fiduciary obligations to the Plaintiff.
2. The 2018 McMurchy Contract contained express contractual obligations to: 1. "faithfully and diligently perform the duties and exercise the powers entrusted to [him] from time to time" (cl.5.1(b)); and 2. "promote the interests and prosperity" of the Plaintiff (cl.5.1(c)).
3. The Plaintiff argued there was, owing to the nature of the employment contract, an implied obligation of fidelity and good faith (as per Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66; [1933] HCA 8 at 81-82; Concut Pty Ltd v Worrell (2000) 75 ALJR 312; [2000] HCA 64 at [57]). Additionally, as a managerial employee, Mr McMurchy owed fiduciary obligations to the Plaintiff (Hospital Products at 68 (Gibbs CJ) and 96-97 (Mason J). Mr McMurchy owed fiduciary duties as he had agreed to act for or in the interests of Employsure in the exercise of powers or discretions relating to his employment (Hospital Products at 96-97; Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179 at [55], [167]; Hodgson v Amcor Ltd [2012] VSC 94; (2012) 264 FLR 1 ("Hodgson") at [1359]).
4. Mr McMurcy was under a duty not to put himself in a position where his interests and duties conflicted (Hodgson at [1363]). His "no conflict" obligations to the Plaintiff required him to avoid situations where there was or could be a conflict, or a real or substantial possibility of conflict, between his personal interests and the Plaintiff's (Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at 199). He could not place himself in a position where he owed conflicting duties (R v Byrnes (1995) 183 CLR 501; [1995] HCA 1 at 516).
5. Mr McMurchy commenced with the Second Defendant on 19 January 2021, while still employed by the Plaintiff, notwithstanding he had been informed in writing on 8 January 2021 that the Plaintiff considered the Second Defendant a direct competitor (CB 3/913 at 914) and on 12 January 2021 that the Second Defendant was a competitor and he should treat himself as an employee of the Plaintiff until 12 April 2021 (CB 3/950-952).

The post-employment restraints - the Second Defendant is relevantly in competition with Employsure

1. The Plaintiff's primary case is that Mr McMurchy's employment contract terminated on 12 April 2021, and from that date the post-employment restraints in cl.20 of the 2018 McMurchy Contract applied. On its alternative case, the contract terminated on 14 March 2021, and from that date cl.20 of the 2018 contract applied. On its further case, the contract terminated on 11 January 2021, and from that date the post-employment restraints in the 2015 McMurchy Contract applied.
2. The relevant clauses are cl.20 of the 2018 McMurchy Contract (CB 3/574, extracted above at [73]) and the restraint clause of the 2015 McMurchy Contract (CB 3/554). Both these clauses are expressed to apply for up to 12 months and throughout Australia.
3. The issue for determination in the Plaintiff's primary case is therefore whether the Second Defendant is a business or prospective business in competition with Employsure as at 12 April 2021, within the meaning of cl.20.1(b) of the 2018 McMurchy Contract. On the alternative case the same question arises but in relation to 14 March 2021. If the 2015 McMurchy Contract applied, the issue is whether the Second Defendant is a business that competes with Employsure, within the meaning of that contract.
4. In oral submissions, the Plaintiff addressed the question of the construction of the phrase "prospective business" in cl.20.1(b), arguing this would include the prospect of competition between the company and some other entity and that there was competition at the date of termination (Confidential Transcript of Day Six at T.16/3-10). The question to ask is whether there is competition between these two enterprises at the relevant time, being the date of termination, or prospectively (Confidential Transcript of Day Six at T.18/11-14).
5. Having regard to the ordinary rules of construction, the question becomes what a reasonable person in the position of the parties would have understood 'in competition' or 'competes' to mean, including having regard to the commercial purpose or objectives to be secured by the contract (Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640; [2014] HCA 7 at [35]). Such a reasonable person would not have understood 'in competition' or 'competes' to mean that a competitor or prospective competitor must compete with the whole of the Plaintiff's business for the restraint to be enlivened, as that would not be a commercially sensible purpose. Rather, a commercially sensible purpose would be reflected by a construction that provided that the restraint was enlivened if there is competition with some segment of the economic activities undertaken by the Plaintiff.

The post-employment non-competition restraint is reasonable

1. The terms of the 2018 McMurchy Contract make it clear that the parties contemplated at the time of entering into that Contract that Mr McMurchy would have access to an array of Employsure's confidential or proprietary information of the kind described in the definition of Confidential Information (see cl.16.2, CB 3/571).
2. In oral submissions (at T.255/21-T.256/4), the Plaintiff argued that Mr McMurchy's reliance on Lansing Linde Ltd v Kerr [1991] 1 WLR 251 ("Lansing") at 260 to justify a restraint against the misuse of confidential information only where there is a notion of real significant harm to the covenantee is inconsistent with what Lord Justice Sawton had observed in the case. Furthermore (at T.256/6-29), that the decision of Edelman J in Emeco demonstrates that much less need be demonstrated by an employer to justify a restraint against the misuse of confidential information than Mr McMurchy argued.
3. That Mr McMurchy would have access to the Plaintiff's confidential information was to be expected at the time of entry into the 2018 McMurchy Contract for several reasons. He was being promoted into a management role, the nature of his position as described in the Position Description he signed would lend itself to such a conclusion (CB 3/579), there was a high number of staff reporting to him, he anticipated he would be privy to the Plaintiff's strategic vision, and the Contract expressly contemplated him being employed in other capacities of similar status (cl.3.1, CB 3/569).
4. Facts occurring after the restraint's inception also demonstrate the circumstances at the relevant date (McHugh v Australian Jockey Club Ltd (2014) 314 ALR 20 at [4(h)]). Once Mr McMurchy began working as Outbound Sales Manager under the 2018 McMurchy Contract, he started attending the Plaintiff's monthly senior management team meetings (T.111/47) and receiving the associated monthly senior management reports (T.112/50) which include information falling within the definition of Confidential Information in the 2018 Contract. Mr McMurchy accepted in cross-examination that this information was "highly confidential" (T.114/10-T.115/5). The fact that he was to become privy to some of Employsure's highly confidential information is sufficient to justify the restraint.
5. The Plaintiff submitted that given the growth rate of its business and Mr McMurchy's promotion, it is reasonable for the parties to have contemplated when entering into the 2018 McMurchy Contract that Mr McMurchy may be further promoted as an ordinary incident of his employment, including in connection with an expansion of the business as in fact occurred when he was subsequently given the role of Manager, Bright HR in June 2019. A restraint entered into in such circumstances can reasonably protect confidential information that Mr McMurchy would or may have access to as a result of such promotion or expansion.

Period for which the restraints should be enforced

1. The Plaintiff seeks to enforce the restraint period of 12 months provided for in the written agreements, commencing after Mr McMurchy ceased working, that is until 12 January 2022.
2. The period for which a restraint supported by a need to protect an employer's confidential information will be valid depends on the time for which the employer's information will remain current and of commercial advantage (Cactus at [36]). As at 2018, the Plaintiff was a fast-growing and innovative organisation challenging traditional HR providers. In such an organisation it may be expected there would be a great deal of sensitive commercial information that would remain current for over 12 months, especially bearing in mind Mr McMurchy's role was to support and deliver the business's plan and strategy.
3. The Plaintiff recognised that alternatively the Court would be entitled to read down the restraint (as per s.4(1) of the Restraints Act) to a lesser period still reflective of the confidential information.
4. In these circumstances, the Plaintiff argued it would be appropriate for the Court to grant an injunction to restrain Mr McMurchy from soliciting other Employsure employees.

Mr McMurchy breached his contract and equitable duties to the Plaintiff by inducing or encouraging Mr Kumaran to leave the Plaintiff

1. The Plaintiff submitted that at or around the time or subsequently after Mr McMurchy accepted his employment contract with the Second Defendant and gave his notice of resignation in December 2020, while still employed by the Plaintiff, he engaged in conduct that involved encouraging and inducing Mr Kumaran to leave his employment with the Plaintiff to take up employment with the Second Defendant. This was in breach of his duties to the Plaintiff (see, e.g., Lablemakers at [115]).
2. On 14 December 2020, Mr McMurchy offered to provide the Second Defendant with the names of potential sales candidates to Mr Sheevers, Sales Enablement Leader at the Second Defendant (CB 3/785). Later that day he provided Mr Kumaran and others' names (CB 3/793). It was submitted that messages and those following (at CB 3/793) evidence there was a subsequent telephone conversation between Mr Sheevers and Mr McMurchy. A message from Mr McMurchy the following day indicated that the named individuals were "looking out for your message when you're ready" and "very keen on the role and opportunity" (CB 3/794), demonstrating that Mr McMurchy had approached each of them in relation to a potential role at the Second Defendant.
3. The Plaintiff submitted that the messages indicated Mr McMurchy was eager to assist with their recruitment, and his offer of assistance was taken up by Mr Sheevers the following day, asking if Mr McMurchy would join a conversation with one of the proffered candidates, to which Mr McMurchy agreed (CB 3/794).
4. The Plaintiff submitted that Mr McMurchy's conduct in relation to Mr Kumaran involved a breach of Mr McMurchy's contractual obligations of fidelity and good faith towards the Plaintiff and his fiduciary duty to the Plaintiff. This would justify the declaration sought by the Plaintiff in respect of the breach. That behaviour includes Mr McMurchy's evidence that he called Mr Kumaran and told him that he was leaving Employsure to join the Second Defendant; he said there will be positions available that Mr Kumaran would be very well suited for and asked if he would like to be put in touch with Mr Shevers (T.101/42-45).
5. Mr McMurchy cited Hodgson at [1517]-[1518] as authority for the proposition that no breach of contract or fiduciary duty arises where one employee aids another employee to find new employment, including by facilitating contact with prospective new employers, in circumstances where the second employee has independently made a decision to leave his employment. The Plaintiff noted that in Hodgson, Vickery J was not satisfied on the evidence that the relevant employees had been enticed to work at another business (at [1516]) and posed the proposition referred to by Mr McMurchy as being "in the usual case" (at [1517]). Therefore this was not intended as a principle of general application, and in any event the Court would not accept that Mr Kumaran independently made a decision to leave his employment with the Plaintiff.

How much notice was Mr McMurchy contractually required to give?

1. Mr McMurchy began by addressing the issue of which employment contract governed his employment on 14 December 2020. His contention was that this turned on the objective meaning of the contract variations, which was explicit and intractable. He argued that the variations mean what they say: internally, and between themselves, they consistently state that Mr McMurchy's contract of employment was the 2015 McMurchy Contract. The variations operate according to their terms.
2. The second issue raised by Mr McMurchy in relation to the amount of notice required was, if his case was accepted and the 2015 McMurchy Contract was the relevant agreement, whether the contract variations can and should be rectified. Mr McMurchy argued that the conditions for rectification are not satisfied; Employsure mistakenly referred to the 2015 Employment Agreement in the Contract Variations, then that mistake was unilateral (see, e.g., Medsara Pty Ltd v Sande [2005] NSWCA 40 at [4]). Mr McMurchy was entitled to act on the belief that his employer knew what it was doing when creating an instrument of employment and intended to achieve the result articulated in that document. He could not have expected a "mistake" of this kind on five separate occasions.
3. Therefore, the 2015 McMurchy Contract applied and 28 days' notice was required (cl. 9, CB 1/111; cl.10, CB 3/558).

Was the notice given by Mr McMurchy effective to terminate his employment on 15 March 2021?

1. Mr McMurchy submitted that if his employment as at 14 December 2020 was relevantly governed by the 2015 McMurchy Contract, then the notice he gave that day was effective to terminate that contract and his employment on 11 January 2021. Therefore, subject to the operation of any valid post-termination restraint in his contract with the Plaintiff, he had ceased to be bound by any relevant express or implied contractual or statutory obligations to the Plaintiff by the time he began his employment with the Second Defendant on 19 January 2021.
2. Mr McMurchy accepted that if, as the Plaintiff contends, it was the 2018 McMurchy Contract that applied, then the notice he gave on 14 December 2020 would be ineffective to terminate the contract on 11 January 2020. In that event, Mr McMurchy argued that the notice he gave was effective, without more, to terminate the contract three months later, on 14 March 2021, adopting the reasoning in Employsure v McMurchy at [58]-[60].

Mr McMurchy's roles at the Plaintiff

1. Mr McMurchy stressed that his role as Manager BrightHR did not involve any selling, rather he was part of the service function of the business. He stated that his role focused on managing a team of up to 13 staff engaged in supporting existing customers (CB 1/118 at [46]-[47]). With the exception of a handful of pre-October 2019 subscribers who added BrightHR to an existing subscription, all of the customers with whom he dealt already had active subscriptions that included BrightHR (CB 1/115 at [34]). The work of Mr McMurchy's team was to train existing customers of the Plaintiff who had subscribed to BrightHR in the use of the software (CB 1/115 at [34]). He also developed targets for training new subscribers, and performance indicators measuring client satisfaction with the training and support services (CB 1/118 at [46]).
2. Mr McMurchy alleged that the Plaintiff was attempting to exaggerate his seniority. He was a middle-ranking employee and never the sole head of the BrightHR support programme, being assisted by Ms Shaw.

No liability under cll.5.1(a), 5.1(c) or 18.2 of the 2018 McMurchy Contract

1. Mr McMurchy contended primarily that his contract was effectively terminated with the Plaintiff before his commencement with the Second Defendant and therefore there was no breach of contract or fiduciary duties. If the Court finds that his employment with the Plaintiff was relevant governed by the 2018 McMurchy Contract and that it remained on foot until 12 April 2021, then he made the following submissions.
2. Clauses 5.1(a), 5.1(c) and 18.2 of the 2018 McMurchy Contract (which the Plaintiff relies upon) are restrictive covenants to which the restraint of trade doctrine applies (Tullett Prebon at [54]-[66], and BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115 at [145]). They should be read together with cl.19.1 (CB 3/573) which required three months' notice and cl.19.3 (CB 3/573) which expressly authorised the Plaintiff to put Mr McMurchy on gardening leave, and which formed the basis for the Plaintiff putting Mr McMurchy on gardening leave for three months.
3. Mr McMurchy argued that the Plaintiff made no attempt to justify such restraint, and that the only purpose of such a regime was to protect the Plaintiff from competition by the complete "sterilisation" of his working capacity for three months. Moreover, while on gardening leave he was denied the opportunity to earn the discretionary bonus that could amount to 9% of his salary. Therefore cll. 5.1(a), 5.1(c) and 18.2 are unreasonable, invalid and unenforceable.
4. Finally, and in the alternative, Mr McMurchy argued that the Plaintiff accepted his repudiation of the 2018 McMurchy Contract when it directed him to return all of its property, having regard to cl.19.8 of the contract which is engaged "[o]n termination of this Agreement…" (CB 3/574). Acceptance brought the contract and the named clauses to an end.

No liability under the "Fidelity Term"

1. The Plaintiff's claim that by commencing with the Second Defendant, Mr McMurchy was in breach of an implied contractual duty of fidelity refers to an obligation of honesty. Mr McMurchy submitted that there was no evidence he acted dishonestly. He did not tell the Plaintiff he was going to take up a position with the Second Defendant but he had no legal duty to do so (Weldon & Co v Harbinson [2000] NSWSC 272 at [71]).
2. The premise of the Plaintiff's claim was that Mr McMurchy's employment with the Second Defendant involved competition with the Plaintiff. Mr McMurchy's primary response to this is the submission that his employment with the Second Defendant did not involve competition with the Plaintiff (addressed below).
3. The starting point of Mr McMurchy's secondary, and alternative, submission is that the implied duty of fidelity does not import unqualified obligations on employees to not engage in any activity in competition with their employer's business, or to not assist any business in competition with that of the employer. First, Mr McMurchy's conduct in accepting employment with the Second Defendant is, or is analogous to the accepted preparatory step of an employee setting up their own business that will compete with their current employer when they leave (Manildra Laboratories v Campbell [2009] NSWSC 987 at [81]-[83]). Second, employees may undertake secondary employment with a competitor, provided that it does not 'inevitably result in damage' to their primary employer (Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at 303). There is no direct evidence that Mr McMurchy commencing employment with the Second Defendant did, or would inevitably, result in damage to the Plaintiff, and no basis on which to make such an inference.
4. The Plaintiff's claim also refers to the diversion of opportunities away from it, however, Mr McMurchy contended there was no logical connection between his commencing with the Second Defendant and this allegation, and no evidence of any opportunity being diverted.

No breach of fiduciary duties

1. Mr McMurchy argued that the Plaintiff's attempt to invoke his fiduciary obligations is erroneous.
2. First, fiduciary duties do not have prescriptive obligations of the kind alleged (Snowden v Australian Mortgage Assist Pty Ltd [2019] NSWSC 1799 at [122]).
3. Second, an obligation to not act against the interests of the Plaintiff was said to exceed to the limits of any recognised fiduciary duty (Hoh & Ors v Frosthollow Pty Ltd & Ors [2014] VSC 77 at [61], [65]) and there is nothing about the relationship or circumstances of the parties that would justify such an extension of Mr McMurchy's duties.
4. Mr McMurchy recognised that it may be that, subject to the circumstances of a particular case, an employee will breach the recognised no-conflict and no-profit fiduciary duties by soliciting, during the period of the employment, the customers of the employer and attempting to have them become customers of a competitive business. However, this does not require an extension of the scope and content of the employee's fiduciary duties beyond the recognised no-conflict and no-profit fiduciary duties to include the separate and independent obligation alleged by the Plaintiff.

No loss suffered

1. Mr McMurchy submitted that even if it was found that he was bound by a contractual or fiduciary duty that precluded him from accepting or commencing with the Second Defendant, there is no evidence that the Plaintiff suffered any loss or damage as a consequence of breach.

Is Mr McMurchy liable for "encouraging and inducing" Mr Kumaran to take up employment with the Second Defendant?

1. Mr McMurchy submitted that the salient evidence in relation to this issue is that Mr Kumaran was entitled to lawfully terminate his employment with the Plaintiff with notice (cl.11.2, CB 3/565C) and was weary of his job with the Plaintiff (CB 1/96 at [22]) and had begun looking for employment elsewhere after being rejected for an internal position (CB 1/96 at [24]; CB 1/106 at [78]).
2. Mr Kumaran's evidence also outlined that Mr Kumaran had telephoned him and after airing his frustration, Mr McMurchy told him about an opportunity at the Second Defendant and that someone else would contact him (T.228/24-T.229/09). This was consistent with Mr McMurchy's evidence (T.100/41-T.102/06; T.139/30-T.140/17). Mr McMurchy then gave Mr Kumaran's name to Mr Shever (CB 3/785; CB 3/783) and Mr Kumaran then had a series of interviews. When Mr Kumaran resigned from the Plaintiff he did so lawfully.
3. It was submitted that based on this evidence it should be found that Mr Kumaran made an independent decision to leave his employment with the Plaintiff. Anything Mr McMurchy said or did was on the premise that Mr Kumaran had told him he had made such a decision. Mr McMurchy facilitated communication between the Second Defendant and Mr Kumaran but did not influence Mr Kumaran's decision to resign. Therefore he did not "encourage and induce" Mr Kumaran to take up employment with the Second Defendant.
4. In the alternative, Mr McMurchy was entitled, while employed by the Plaintiff, to discuss and pursue employment opportunities with other potential employees, including, if it be relevant, with competitors of the Plaintiff (Hodgson at [1512]-[1513]). No breach of an implied contractual duty of fidelity or fiduciary duty arises where one employee aids another employee to find new employment, including by facilitating contact with prospective new employers, in circumstances where the second employee has independently made a decision to leave his current employment (Hodgson at [1517]-[1518]) Especially where the second employee is lawfully entitled to leave their employment with notice. The general language of cl.2.2 of the Standard Terms annexed to the 2015 McMurchy Contract, and cll.5.1(b) and (c) of the 2018 McMurchy Contract should not be construed as having wider and tyrannous operation.

Mr McMurchy's equitable obligation of confidence

1. Mr McMurchy did not take issue with the fact that he has an equitable obligation to the effect alleged in the Plaintiff's Statement of Claim, but says that the evidence does not disclose any basis to think he has or might not comply with that obligation.

Is the Second Defendant's business "in competition with" Employsure?

1. Mr McMurchy argued that the first task in answering this question is to ascertain the proper construction of cl.20.1(b) of the 2018 McMurchy Contract, according to the principles in Just Group at [38] and Two Lands Services at [62] (3) and [65].
2. The critical question of construction concerns the meaning of the expression "any business…in competition with" the Plaintiff or a related corporation, as that expression is used in cl.20.1(b).
3. Mr McMurchy submitted that to the extent that the definitions of "competition" as proffered by Mr Plavsic and Dr Coker, and Black J in Veda Advantage at [28] differ, those differences are not material to the construction of cl.20.1(b). The essence of the concept should be taken for the purposes of clause 20.1(b) to be a rivalry in the trade between two 'product offerings' that are sufficiently similar to appeal to the same consumers, in the sense - as Mr Plavsic put it - that "the two product offerings are similar and would be viewed as substitutes by customers" (Cb 2/214 at [6.2]). For this purpose, "similar" does not mean "identical"; it is accepted that there is a "continuum of similarity" (T.151/49-50).
4. Mr McMurchy argued that the businesses of the Plaintiff and the Second Defendant are materially different and have dissimilar operations. The Plaintiff's business is to provide consultancy and advisory services in human resources and workplace health and safety (CB 1/54 at [9], [11]). Its services include consultancy, reviewing documents, training staff and managing disciplinary situations, among others, and offers these by way of subscription (CB 1/54 at [11]). By contrast, the Second Defendant sells human resources software (CB 1/149 at [3], [5]) with functions including recruitment, performance, payroll, leave and rostering (CB 1/149 at [5]). The Second Defendant does not provide any of the services that the Plaintiff provides, including consulting or advice (CB 1/152-153 at [16], [18]).
5. Mr McMurchy rejected the Plaintiff's contention that cl.20.1(b) applies "if there is competition in some segment of the economic activities undertaken by [the Plaintiff]". He argued that this contention misreads cl.20.1(a) which carefully and deliberately focuses on competition between businesses not products.
6. Mr McMurchy's first submission was that, on its proper construction, cl.20.1(b) is not engaged in this case, because there is no competition between the Second Defendant and the Plaintiff at the level of their businesses. They are not rivals in trade because, using the language of Two Lands Services, their businesses operate in a materially dissimilar manner, and the products they offer are not similar nor calculated to appeal to the same consumers.

Is the restraint in cl.20.1(b) reasonable?

1. Mr McMurchy submitted that the Plaintiff had not successfully demonstrated that any of the restraints under cl.20.1(b) were reasonable, with the result that they are invalid and unenforceable.
2. Mr McMurchy noted the Plaintiff's justification of the restraint in cl.20.1(b) as it being of the kind in Littlewoods in which Lord Denning MR explained that a covenant against competition may be justified where the employee has access to protectable information during the employment, but only "if limited to a short period".
3. Mr McMurchy submitted that four aspects of this principle are especially important in this case. First, the information that can be protected in this way must be either a trade secret or confidential information that has the capacity to cause real or significant harm to the covenantee if it is disclosed to a competitor (DP World at [30]). Second, the Second Defendant is the only putative competitor identified by the Plaintiff and the only point of reference for a question of the reasonableness of cl.20.1(b) so the Court should ignore the possibility of there being another competitor in answering this question. Third, a restraint of the kind authorised by Littlewoods must always be only for a short period of time. Finally, the application of the principle depends both on the nature of the information and the seniority of the employee (BGC Partners at [36], citing JMB (NSW) Pty Ltd v West [2020] NSWSC 1380 ("JMB") at [67]-[73]).
4. Mr McMurchy noted that the Plaintiff had fixed upon the date of the 2018 McMurchy Contract (February 2019) as the reference point for the enquiry of the validity of the restraint. By the 2018 McMurchy Contract, Mr McMurchy was appointed to the position of Outbound Sales Manager. This position involved managing a team in sales of the Plaintiff's subscription services (CB 3/579). This did not involve human resources software as none was introduced by the Plaintiff until BrightHR in October 2019.
5. Where, as here, the interest sought to be protected is the employer's confidential information, the Court must be satisfied that, at the time of contract, the nature of the employee's proposed employment was such that the employee would be exposed to the covenantee's confidential information, and that the information was of a kind that could be used by a competitor to the prejudice of the covenantee (Emeco at [100]). Mr McMurchy submitted the latter factor is an essential element of the rest and missing from the information upon which the Plaintiff relies. Further, that the information must be such that it would cause considerable harm to the owner of the secret if disclosed to a competitor (Lansing at 260 and 270; Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564; Miles at 530 [29]).

Should the restraint under cl.20.1(b) be enforced?

1. Mr McMurchy argued that to the extent that cl.20.1(b) is held to be valid, the following factors mitigate against enforcing it by injunction at all or in full.
2. First, to the extent that the restraint is held to be justified by the Plaintiff's interest in protecting confidential information, there is no likelihood that Mr McMurchy will remember it in a form that could be misused (JMB).
3. Second, the fact that Mr McMurchy has been on "gardening leave" since 12 January 2021. He submitted the period since then should be credited against the time for which the restraint might be enforced (see, e.g., Tullett Prebon at [66]).
4. Finally, the Plaintiff's delay (see, e.g., IceTV v Ross [2007] NSWSC 635 at [66]-[68], [78]).

Submissions of the parties in relation to the Second Defendant

Plaintiff's Submissions

1. The Plaintiff submitted that the Second Defendant was guilty of inducing breach of contract, being Mr McMurchy's inducement or encouragement of Mr Kumaran to leave the Plaintiff to take up employment with the Second Defendant.
2. First, there is no doubt that there was a contract between the Plaintiff and Mr McMurchy, being either the 2018 or 2015 Contract.
3. Next, the Second Defendant knew that a contract existed, up until no later than 11 January 2021. Ms Watt gave evidence that she understood that Mr McMurchy gave 4 weeks' notice of the termination of his contract of employment on about 14 December 2020 and that she understood that as of 14 December 2020 Mr McMurchy was still subject to a contract of employment with Employsure (T.84/17-20; T.84-38-40). The Court should infer that Mr Shevers was also aware, particularly in the absence of him being called as a witness.
4. Third, the Second Defendant knew that Mr McMurchy had obligations of fidelity to the Plaintiff (T.85/1-5), obligations to act in the best interests of the plaintiff (T.85/7-9), and obligations to be faithful and diligent (T.86/24-26). That was acknowledged by Ms Watt in cross-examination and it may be inferred through Mr Shevers. The Plaintiff submitted that the Court should conclude that Ms Watt and Mr Shevers knew that if Mr McMurchy took steps to encourage or induce employees of Employsure to leave Employsure and take up employment with the Second Defendant, that would constitute a breach of contract by Mr McMurchy. It was an obvious breach.
5. Fourth, the Court should conclude that Mr Shevers intended to induce or procure Mr McMurchy to breach his contract of employment with the Plaintiff by having Mr McMurchy approach Employsure employees, and particularly Mr Kumaran, with a view to recruit them to the Second Defendant. Mr Shevers had encouraged Mr McMurchy to provide details of other employees to him.
6. Fifth, the Plaintiff suffered loss or damage. Mr Kumaran did resign from the Plaintiff and joined the Second Defendant. The Plaintiff lost a valuable and experienced employee and had to go to the trouble and expense of replacing him.
7. Sixth, the Second Defendant does not rely on any defence of justification.
8. The Plaintiff argued these same factual matters support the conclusion that the Second Defendant knowingly assisted Mr McMurchy to breach his fiduciary duty by encouraging Mr Kumaran to join the Second Defendant. Liability for both knowing assistance in a breach of fiduciary duty turns on what the third party knew, or had reason to know, of the circumstances constituting the "dishonest and fraudulent design" of the fiduciary (Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [259]). Mr McMurchy's conduct in inducing Mr Kumaran to leave amounts to a transgression of ordinary standards of behaviour (Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 at [127]-[129]) and the Second Defendant knew or had reason to know of his conduct.

The Second Defendant's Submissions

1. The Second Defendant denied both factually and legally that Mr McMurchy had induced and encouraged Mr Kumaran to leave his employment with the Plaintiff to take up employment with it. If that denial is accepted, then the case against the Second Defendant as it is now put falls away. In any event, the Second Defendant's case is that it has not been demonstrated that the Second Defendant had the state of mind necessary to make good the Plaintiff's claims against it. The Second Defendant could not have actual or constructive knowledge of contractual or fiduciary obligations which, for the reasons given by Mr McMurchy are submitted did not exist.

Submissions of the Parties in the Kumaran Proceedings

Mr Kumaran has breached his restraint clause

1. The Kumaran Contract includes a term entitled "Restraint" (at CB 3/564, extracted above at [75]).
2. As with Mr McMurchy, that restraint is expressed to apply for up to 12 months, and throughout Australia.
3. The Plaintiff argued that if it was correct that the Second Defendant is a business "wholly or partly in competition" with the Plaintiff, by accepting and commencing employment with the Second Defendant, Mr Kumaran acted in breach of the post-employment restraint in his contract.

Mr Kumaran's post-employment restraint is reasonable

1. The Plaintiff submitted that reasonableness of a restraint is tested at the time of entering into the contract, but parties are entitled to make some allowance for potential developments in the role. Mr Kumaran entered into the Kumaran Contract at the time that he commenced with the Plaintiff in a sales consultant role. During his employment he received a number of promotions reflecting his performance (T.217/5-T.218/17) and he made it clear that he was keen to progress in the company (T.216/44-T.217/3).
2. The introductory paragraph to the "Restraint" clause in the Kumaran Contract (CB 3/563, extracted above at [75]) explicitly contemplated that Mr Kumaran may have access to the Plaintiff's confidential information, as did the "Confidential Information" clause also contemplated Mr Kumaran becoming aware of the Plaintiff's Confidential Information (as defined) (cl.9 of the Schedule of standard terms, CB 3/565B).
3. Therefore, at time of entry into the Kumaran Contract, the parties understood he may have access to the Plaintiff's confidential information. Further, given the Plaintiff's growth and Mr Kumaran's disclosed desire to progress in the business, it is reasonable for the parties to have contemplated at this time that Mr Kumaran may be promoted, as in fact occurred. Therefore, it was reasonable for the Plaintiff to seek to protect not only confidential information to which Mr Kumaran would have access in his initial role, but also confidential information that Mr Kumaran may have access to in any role to which he was promoted.
4. The Plaintiff submitted that its evidence dealt with the confidential information to which Mr Kumaran had access to during his final role as a Business Sales Partner, Inbound. This included information about the Plaintiff's digital marketing strategy, and sale process (Affidavit of Morris, 24 March 2021 at [93], CB 1/72 and CB 5/1576), being regularly informed of the productivity and success of the Plaintiff's inbound sales team (see, e.g., CB 5/1542; T.222/6-T.224/19), knowledge of the needs of potential customers contacting the Plaintiff (Affidavit of Morris, 24 March 2021 at [95], CB 1/72), and access to customer data such as pricing and contact names and information (Affidavit of Thomson, 24 March 2021 at [19]-[20], CB 1/89).
5. The Plaintiff argued that, as with Mr McMurchy, considerable weight is to be given to the parties' agreement to a 12 month restraint period. The Plaintiff seeks to enforce the restraint for 12 months after he ceased working - that is, until 11 February 2022.

Is the Second Defendant's business "wholly or partly in competition with" the Plaintiff?

1. Mr Kumaran submitted that despite some minor differences between the language of cl.20.1(b) in Mr McMurchy's 2018 Contract and the language of the restraints in his own contract, essentially the same questions arise in this issue as in Mr McMurchy's case, and they are to be answered in the same way. That is, the Second Defendant is not wholly or partly in competition with the business of the Plaintiff.

Are the restraints reasonable?

1. Mr Kumaran raised the same issues as identified in relation to Mr McMurchy, with the added difficulties for the Plaintiff that: (a) Mr Kumaran held the lowest level position in the Plaintiff's organisation (see JMB at [67]-[73]), (b) he had nothing to do with marketing (CB 1/103 at [66]), (c) his work involved only speaking with prospective customers who made contact with the Plaintiff, securing their interest, and then passing them on to salespeople, with the result that such knowledge as he gained of particular prospective customers was necessarily only ephemeral, (d) it was "very uncommon [for him] to have any opportunity to bring up BrightHR in conversation at all" (CB 1/101 at [62]).

Should the restraints be enforced?

1. Mr Kumaran submitted the restraints should not be enforced for the same reasons in relation to Mr McMurcy's restraints.

The McMurchy Proceedings - What contract bound the parties?

1. What follows is based not only what was received in open court but also what was received in confidential session.
2. Mr McMurchy resigned on 14 December 2020. Contrary to his submission that he was governed by his 2015 contract in my view he was in fact bound by his 2018 contract.
3. The determination of this question then determines the notice period required: 3 months or 4 weeks.
4. His initial 2015 contract offered Mr McMurchy a job as a "business sales consultant" with a probationary period of three months and he was to report to the Head of Sales. He was to receive a salary of $54,750 including superannuation payable fortnightly and was also to be paid a commission of 1.37% inclusive of superannuation of the net value on new business. It did provide for the employee a right to terminate on four weeks' notice (cl.10.2(d)).
5. There is no doubt that Mr McMurchy entered the 2018 contract which took effect from 1 April 2018.
6. Clause 2.3 of the 2018 contract states that it "supersedes" the 2015 contract. The effect of cl.2.3 quite clearly was for the 2018 contract to wholly replace the 2015 contract. That position is made abundantly plain by cl.26.1 that states that any previous agreements cease to have effect. He was to report to the Head of Sales and was to receive a salary of $109,500 and was to be called the "Outbound Sales Manager". Three months' notice was required to terminate the contract.
7. The 15 November 2018 "amendment" changed Mr McMurchy's line of reporting but referred to "the original Employment Agreement".
8. The 22 March 2019 "amendment", referred to "your contract of employment dated 23 January 2015") and it changed his line of report.
9. It cannot be gainsaid that there were five variation letters. But three merely recorded the person to whom Mr McMurchy reported. Another recorded a change to his job title.
10. The confusion obviously was caused by the repeated reference to his "contract of employment dated 23 January 2015". Mr McMurchy contends that these references were effective to reinstate the terms of his 2015 contract including the 4 week notice period.
11. The first amendment letter was on 22 November 2018. By this amendment his line of report was changed. Mr McMurchy signed a letter dated 15 November. This letter refers to the "original Employment Agreement".

What was the appropriate period of notice and when did Mr McMurchy's contract with the Plaintiff terminate?

1. The next issues were what the appropriate period of notice was and at what date Mr McMurchy's contract with the Plaintiff terminated.
2. Although the parties explored the possibility of some resolution none was reached. Mr McMurchy purported to give four weeks' notice. He did not say so in those terms, but his letter of 14 December 2020 stated his last day at work would be 11 January 2021. This provided for, in effect, four weeks' notice. He was I am satisfied informed twice that he was required to give three months' notice but obviously made a choice not to do so. He says he believed as his employment was governed by the 2015 contract four weeks' notice was all he needed to give. His intention of course is irrelevant on any view.
3. In my view he was at all times governed by the 2018 contract and was required to give three months' notice pursuant to cl.19.1 of the contract. He did not do so.
4. The question that arises is whether, in the circumstances of his letter of 14 December 2020 giving less notice than what was required, it was sufficient to terminate the contract. In my view it did not. The letter from Mr McMurchy clearly gave four weeks' notice and no more and he did it deliberately there can be no doubt. The letter was quite precise, and the choice of 11 January 2021 was no accident.
5. In so far as it is necessary to say so I do not agree with Parker J's analysis (in Employsure Pty Ltd v McMurchy [2021] NSWSC 139 at [58]-[61], on the interlocutory hearing and which is relied on by Mr McMurchy. His Honour thought on the basis of the decision of the House of Lords in Mannai that the letter arguably could be construed as implicitly giving notice sufficient to bring the contract to an end. In my view, with the very greatest of respect to his Honour, the letter when viewed in the full factual context (which became familiar in the hearing) could not reasonably be construed in that way. In my view, in any event I do not regard as arguable (not that I need concern myself with the interlocutory hearing) the letter is capable of giving anything other than four weeks' notice. Furthermore, I accept the Plaintiff's submission that where a party gives notice that is not of the required length, it does not operate to terminate the contract (Automatic Fire Sprinklers v Watson (1946) 72 CLR 435 at 447 (per Latham CJ) and 467 (per Dixon J)).

What obligations did Mr McMurchy owe?

1. Given his status I am also of the view that Mr McMurchy was bound by both contractual and fiduciary obligations. That is so from the general law perspective and also by reason of clauses 5.1(b) and 5.1(c).
2. Mr McMurchy was therefore obliged not to work for the second defendant as that was inconsistent with his respective legal obligations. He was obliged to avoid any situation where there would be a conflict with his loyalty to the Plaintiff. He had been central to the setting up of systems and processes for the launch of the BrightHR in Australia and managing the Bright business. Although I will come to the issue below in greater detail, he placed himself in a position as the "Sales and Customer Success Director" for the Breathe software in his new role at the second defendant.
3. In my view to accept employment with the second defendant he breached his express obligations with the Plaintiff.
4. Therefore, on my reasoning above Mr McMurchy was from 12 April 2021 subject to the post-employment restraints contained in the 2018 contract. And in turn that gives rise to one of the most significant issues in the case. The reason is the restraint clause, clause 20, is contingent upon Mr McMurchy being "engaged, concerned or interested, directly or indirectly whether as an employee or otherwise: …in any business or prospective business in competition with [Employsure] at the time of the termination of employment.
5. The restraint (which I regard as the relevant one) is expressed to apply for up to 12 months.

In competition or not?

1. Before however coming to the question of whether it is reasonable the preliminary question is whether it can be said that the Plaintiff's business is relevantly in competition with that of the second defendant. This was an important issue indeed and it occupied a good deal of time at the hearing.
2. The ordinary rules of construction apply to restraint clauses. The task in every case is to ascertain the meaning which the words in the contract would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
3. I would accept as correct the Plaintiff's submission regarding the construction of the phrase "prospective business" in cl.20 that this includes the prospect of competition between the Plaintiff and some other entity. I prefer this to Mr McMurchy's argument that "prospective business" cannot apply to the Second Defendant as it was an established business at the date of termination, and it was the Plaintiff who at the time was not actually competing. Instead, the appropriate question is to ask whether there is competition between these two enterprises at the relevant time, being the date of termination or prospectively.
4. The words "competition" or competitor are not defined in the agreement. The restraint by its express terms is intended to cover "any business or prospective business "which may be in competition with the Plaintiff. The relevant date upon which the status of competition or not is at 12 April 2021 within the meaning of cl.20.1(b) of the 2018 contract.
5. The words "in competition" must be construed by what a reasonable person in the position of the parties would have understood them to mean given the commercial purpose or objectives to be secured by the contract.
6. In that regard the Plaintiff relied upon a decision of Black J in Veda. The point I consider is validly made that to be a competitor or a prospective competitor does not involve competing with the whole of the Plaintiff's business for the restraint to be enlivened. Provided some segment of economic activity undertaken by the Plaintiff is in competition with another entity I am of the view that is sufficient.
7. One would expect that the words "in competition with" are relatively commonplace in employment contracts. Accepting that each contract must be looked at in its context I also found useful the decisions of Black J in Veda Advantage and of McDougall J in News Life Media at [39] (although I accept a slightly differently drafted clause) when his Honour said "in assessing the question of competition it is necessary to look at the extent to which there is competition in some particular market".

What is a reasonable restraint in the circumstances?

1. I am therefore of the view that the time Mr McMurchy's 2018 contract ended the Plaintiff and the second defendant were in competition in the sense that that term should be understood in the contract.
2. The next question is whether the restraint in the 2018 contract is reasonable. That assessment of course needs to take place at the time of entry into the contract.
3. By the terms of cl.16.2 of the 2018 contract, Mr McMurchy acknowledged that confidential material would be disclosed to him. But this in one sense goes without saying because not an unimportant aspect of what occurred in 2018 was that he was promoted to the position of Outbound Sales Manager. In that role he was to contribute to the development and execution of the Plaintiff's overall business strategy and plan and to engage with key stakeholders. Mr McMurchy accepted as much in his evidence, T.106/43-50 and T.107/31-40. He also contemplated that he would on the assumption of the role becoming privy to the Plaintiff's strategic vision, T.111/10-13.
4. The role of Outbound Sales Manager was clearly a senior one within the Plaintiff. Mr McMurchy had a group of team leaders reporting to him who in turn had about 100 sales staff reporting to them.
5. Upon the assumption of his role as Sales Manager he began attending senior management team meetings and receiving team reports. He accepted again in his evidence that the materials he was then receiving were highly confidential, covering all aspects of the Plaintiff's business, T.114/10-T.115/5 and T.115/26-28. Mr McMurchy had an obligation to view the Plaintiff's offering holistically and in so doing he was obviously, of necessity, exposed to a significant amount of the Plaintiff's confidential material.
6. According to Mr Morris, the business of the Plaintiff had grown significantly since 2011 when it commenced its operations. It may safely be assumed that as Mr McMurchy was employed from 2015 and promoted in 2018, he obviously participated in the expansion of the business and must have gained intimate knowledge of its strategic strengths and weaknesses. Ultimately, however, his appointment as Manager for BrightHR gave him a particular cachet. He was involved in the launch, development, marketing and support of the BrightHR business in Australia. He was in a unique position to gauge the product's shortcomings and its potential developments. He was also involved in its marketing and was exposed no doubt to confidential information in that regard which could be used by the Second Defendant to the detriment of the Plaintiff. This is information that would have informed Mr Shevers whose role was to closely consider the experience and utility of Mr McMurchy's work at the Plaintiff in terms of his suitability at the Second Defendant (T.78/15-20). The position at the Second Defendant also being a senior leadership role (T.81/30-34).

Did Mr McMurchy breach his contract in his communication with Mr Kumaran?

1. A further question that arises is whether Mr McMurchy breached his contractual and or fiduciary duties to the Plaintiff by inducing or encouraging Mr Kumaran to leave the Plaintiff.
2. It will be recalled that he was obliged pursuant to cl.5.1(b) and cl.5.1(c) to both faithfully and diligently perform and in doing so promote the interests and prosperity of the Plaintiff. He was also subject to an implied obligation of fidelity and good faith.
3. There is little doubt that if it be the fact an employee seeks to persuade a fellow employee to resign and accept a position elsewhere that would be to the detriment of the employer such that that employee would be in breach of his/her contractual and or fiduciary duties.
4. Mr McMurchy resigned by letter of 14 December 2020 having accepted employment with the second defendant on 11 December 2020.
5. On 14 December 2020 Mr McMurchy offered to supply the second defendant with the names of potential sales employees. That arises expressly from a message exchange between Mr McMurchy and an employee of the second defendant, Mr Shevers, CB3:785. There had been a discussion between the two in which Mr Kumaran had been mentioned, T.100/38-39, T.138/9, T.138/11-14,19-20,49-50.
6. In any event Mr McMurchy responded to Mr Shevers later on 14 December in which he mentioned three employees, Mr Kumaran being one, CB 3/793. Mr McMurchy and Mr Shevers communicated the next day again, CB 3/793 by message from which it may reasonably be inferred there was some further discussion. Mr Shevers was not called in the proceedings and Mr McNurchy said nothing about the matter in evidence.
7. But the very next day Mr McMurchy wrote to Mr Shevers indicating that each of the three employees previously mentioned (importantly Mr Kumaran) was "very keen on the role and opportunity", CB 3/794.
8. It may reasonably be inferred from that communication that Mr McMurchy could only have communicated in those terms if he had approached them about a role with the second defendant and that they were interested.
9. It is also clear that Mr Shevers had made arrangements to meet with one of the other employees on 23 December 2020, CB3:794.
10. Mr McMurchy accepted in his evidence that he called Mr Kumaran at about the time he provided Mr Kumaran's name to Mr Shevers as potential candidate to tell him he was leaving the Plaintiff and that he was taking up a position with the second defendant (at Breathe) and that it would be a good opportunity for him. He also told him how exciting the opportunity was, T.140/6-17 and he explained to Mr Kumaran what the role and opportunity with the second defendant was, T.140/31-33.

The case against the Second Defendant

1. However, although Mr McMurchy engaged in subversive conduct, the further question arises as to the extent his conduct implicates the second defendant.
2. It is put that the second defendant should be held liable for the tort of inducing a breach by Mr Kumaran of his contract with the Plaintiff.
3. The Plaintiff rightly acknowledges the relevant components of the tort, and of course bears the onus to prove each. Those components can shortly be described as requiring the Plaintiff to prove each of the existence of a contract, knowledge on the part of the defendant as to the existence of a contract, knowledge on the part of the defendant that some act on the part of one of the contracting parties would involve a breach and lastly but importantly an intention on the part of the defendant to induce or procure a contracting party to breach the contract and lastly that the breach has caused loss to the plaintiff.
4. The first three may in most cases be safely inferred as almost de rigueur in any employment or commercial context and here is no exception.
5. Here, Ms Watt accepted she understood that Mr McMurchy gave 4 weeks' notice of his employment on 14 December 2020 (T.81/420-48; T.84/15-20) and it would follow that she understood he was still subject to contract with the Plaintiff. And given the dates of their communicating I am satisfied Mr Shevers would also have had the same knowledge.
6. It may also be inferred that either Mr Shevers or Ms Watt (although she seems to have been a little out of touch, see, e.g., T.70/45-50; T.71/15-20) must have known that Mr McMurchy had obligations both contractual and fiduciary to act in the Plaintiff's best interest. Ms Watt agreed that she would have expected as such (T.85/1-10). It may also be inferred that Mr Shevers at the least would have known that to encourage or induce an employee of the Plaintiff to leave its employ would amount to a breach of contract by Mr McMurchy. Ms Watt considered Mr Shevers was just doing his job as "sales talent acquisition specialist" (T.72/50) by asking the likes of Mr McMurchy to recruit other employees to leave contrary to the recruiters contractual and or fiduciary obligations (T.87/32-33). Ms Watt indicated that it was an active part of her brief to take candidates from competitors (T.93/10-20). It does seem rather odd that a person holding a position as Ms Watt would find that conduct acceptable. But perhaps in her case it is not.

The case against Mr Kumaran

1. Mr Kumaran commenced employment with the Plaintiff on or about 27 February 2018.
2. On each of the two occasions he was promoted he signed a letter reaffirming his original contractual terms set out in the letter of offer of 19 February 2018.
3. Prior to leaving the Plaintiff he was one of eight business sales "partners" (denoting a senior sales employee) and he earned $134,000 per annum.
4. Having received an offer from the second defendant he resigned from the Plaintiff on 28 January 2021.
5. He was obliged to give four weeks' notice but the Plaintiff accepted two weeks' notice in ignorance of the fact that he had accepted employment with the second defendant, Affidavit of Thomson, 24 March 2021, [10]-[11]. The plaintiff only became aware of his employment with the second defendant on 12 February 2021.
6. It should be noted that after proceedings were commenced against him, Mr Kumaran gave undertakings not to use or disclose the Plaintiff's confidential information.
7. Mr Kumaran pursuant to his contract is restrained from working for any entity which is "wholly or partly engaged…in competition…" and for a period of 12 months.
8. As a result of my earlier findings as to the respective businesses of the Plaintiff and the second defendant, Mr Kumaran was in breach of his contract by working for the second defendant.
9. Mr Kumaran prior to his departure to the second defendant was in a sales consultant role. He had received a number of promotions but not as many as he thought he deserved.
10. There is no doubt that Mr Kumaran was expected to be exposed to highly confidential information in his various roles. That was obviously understood at the outset hence the relevant contractual terms.
11. The coalescence between the Plaintiff's growth and Mr Kumaran's promotion and ambitions is the very dynamic it is reasonable to suppose the parties contemplated at the time the contract was entered. The restraints imposed upon and agreed to by Mr Kumaran to protect the use or misuse of the Plaintiff's confidential material were entirely reasonable on the Plaintiff's part.
12. There is no doubt that at the very least in his final role as a "sales partner" he had access to a good deal of confidential material about digital marketing and the strategies and productivity of the inbound sales teams, Affidavit of Morris, 24 March 2021, [90]-[98] and the emails at CB5:1542,1544.

Conclusion

1. The 2018 McMurchy Contract, as amended by the variation letters, was relevantly in force when Mr McMurchy resigned on 14 December 2020. The references to his "contract of employment dated 23 January 2015" in the variation letters did not reinstate the terms of the 2015 McMurchy Contract, to do so would have led to an objectively absurd result, including significantly less remuneration. Further, no reasonable person could have rationally believed that the variation letters would only be reinstating the former contract in relation to one element, being the shorter period of notice. The reference to the 2015 McMurchy Contract should be read as a reference to the contract of 20 February 2018 (as amended by the letter dated 15 November 2019) and I would therefore rectify the contract at common law.
2. As it was the 2018 McMurchy Contract which governed the parties' relations it follows that Mr McMurchy was required to give three months' notice pursuant to cl.19.1. He did not do so.
3. Mr McMurchy's letter of resignation purporting to give four weeks' notice did not operate to terminate the contract. Rather, the contract was still in force on 12 January 2021 when the Plaintiff gave Mr McMurchy three months' notice of termination, bringing the contract to an end on 12 April 2021. Mr McMurchy had repudiated his contract and while it was open to the Plaintiff to accept it, they did not. He was, from 12 April 2021, subject to the post-employment restraints contained in the 2018 McMurchy Contract.
4. By reason of the general law, and clauses 5.1(b) and (c) of the 2018 McMurchy Contract, Mr McMurchy was bound by both contractual and fiduciary obligations to the Plaintiff. Therefore, Mr McMurchy was in breach of his contract when he took up employment with the Second Defendant on 19 January 2021. Doing so without the Plaintiff's informed consent was also a breach of cl.18.2 of the 2018 McMurchy Contract. Clause 5.1 required him to devote the whole of his time to his duties for the Plaintiff.
5. Undertaking the task of construction, using the ordinary contract rules, I examined the restraint in cl.20 of the 2018 McMurchy Contract. This involved asking whether there was competition between the Plaintiff and Second Defendant at the date of termination or prospectively. I accept that the words "in competition" (which are undefined in the contract) may refer to some segment of economic activity undertaken by the Plaintiff in competition with another entity in some particular market. Even despite BrightHR not being sold as a stand-alone product I find that the different software are in competition. In my view, the price difference of the products is relevant in an assessment of competition, but not defining. The backbook customers alone provide a sample of customers who both entities could compete for. Furthermore, there is contemporaneous evidence that the Second Defendant and Mr McMurchy considered the Plaintiff to be a competitor.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 September 2021