The plaintiff (the Company) seeks to enforce post-employment restraints on the defendant (Mr Hardaker) contained, first, in the contract of employment which he entered into with the Company on 7 October 2014 and, second, an undertaking in favour of the Company which he signed on 2 February 2022 (the Undertaking).
The issues for determination are:
1. whether the post-employment non-compete restraint in the contract of employment is void as an unlawful restraint of trade;
2. whether the Undertaking is binding as a contract on Mr Hardaker; and
3. if the Undertaking is binding, whether the non-compete restraints contained within it are void as an unlawful restraint of trade.
On 17 June 2022, the Court granted the Company interlocutory relief in respect of the non-compete restraints which expired on 22 October 2022: see Janala Pty Ltd v Hardaker [2022] NSWSC 822.
[4]
Witnesses
Evidence was given by four witnesses on behalf of the Company. They were Mr Peter Drewes, the General Manager of the Company and the person to whom Mr Hardaker reported when he joined the Company in 2014; Mr Michael Britza, the Assistant General Manager of the Company who joined the Company in June 2014 and was responsible for managing the Company's "Solutions" team in the last three years of Mr Hardaker's employment with the Company; Ms Nicole Hart who joined the Company in 2019 with responsibility for human resources; and Mr Paul Jones who is employed by Technology Services Group Pty Ltd, an associated company of the Company, and performs the role of managing the Company's information technology platform and governance, including security. Each of these witnesses was cross-examined. I formed a favourable impression of each of them and accept that they were seeking to provide accurate and honest answers to the questions they were asked.
Mr Drewes and Mr Britza gave evidence regarding the business of the Company over the period of Mr Hardaker's employment and his role within it. Ms Hart gave evidence regarding the events in January to April 2022, relating to the termination of Mr Hardaker's employment with the Company. Mr Jones gave evidence regarding the systems in place to protect the information on the Company's computer databases, and also Mr Hardaker's access to the databases in the relevant period.
Mr Hardaker did not give evidence.
[5]
The Company's business and Mr Hardaker's role in it
Mr Hardaker commenced employment with the Company on 17 November 2014 in the role of National Site to Site Project Manager under the terms of a written contract of employment dated 11 July 2014 but not signed by him until 7 October 2014 (the Contract). His starting salary was $XXX per annum. He resigned on 25 March 2022 and ceased employment with the Company on 22 April 2022. On 2 May 2022, Mr Hardaker commenced employment with a competitor of the Company, GPI (General) Pty Ltd trading as PFM Corp (PFM Corp).
The Company has at all relevant times operated a business of transporting sensitive freight and associated services throughout Australia under the trading name "COPE Sensitive Freight".
Mr Drewes gave evidence, which was not challenged, that specialist "end-to-end" sensitive freight services are not widely offered in the freight and logistics industry. The expression "end-to-end" means that the sensitive freight is moved from one site to another, which can include warehousing the freight. Given the nature of the freight being transported (usually large equipment, such as MRI machines), additional services provided by the Company compared to the transport of ordinary freight include the provision of extra manpower, specialised lifting equipment (such as cranes, forklifts and skates), specialised purpose-built vehicles, safe work documentation and obtaining clearance certificates from engineers and traffic control.
In both 2014 and 2022, when Mr Hardaker's employment with the Company ended, it had four key competitors in this industry performing the same or substantially similar sensitive freight services as the Company, including PFM Corp. Generally, customers seeking sensitive freight services use one or more of these four companies under a panel arrangement, and I infer from this that the Company continuously competes with one or more of its direct competitors for work from its customers.
The Company operates in a number of markets including healthcare, information technology, printing and commercial copiers, electronic gaming machines, power generators and telecommunications hardware.
Over the period of Mr Hardaker's employment with the Company, it targeted the healthcare sector as an area for significant growth in its business and by 30 June 2022 revenue from customers in that sector represented a significant proportion of the Company's total revenue from its sensitive freight services. The predominant way the Company targeted the healthcare sector was by building relationships with its customers in that sector, and Mr Hardaker was a part of this activity. The healthcare sector involves both the transport of new medical equipment to customers and also the transport of old medical equipment for "reseller customers", i.e. a customer who has purchased old equipment from one of the Company's customers and then engages the Company to remove and transport the old equipment to a new location.
[6]
Resignation from the Company and commencement with PFM
On 25 March 2022, Mr Hardaker tendered his resignation from employment with the Company with his last day to be 22 April 2022. He continued to work for the Company until 14 April 2022 when he was placed on gardening leave for the remainder of the period to 22 April 2022.
On 2 May 2022, Mr Hardaker signed a contract of employment with All States Personnel Pty Ltd (ASP) and commenced work on the same day in the role of National Medical, Production Print & IT Manager. ASP is an associated entity of GPI (General) Pty Ltd, which trades as PFM Corp, a competitor of the Company. Item 3 of the schedule to the contract describes his position as "a hands on role which will require management as well as work on the tools [and] recruiting staff for Medical, IT and Production Print site to site." It also states that he is "to work with current State Operation Managers for full utilisation of PFM assets."
Item 7 to the schedule to the contract provided that in addition to his salary, he was entitled to receive a "sales incentive" for each customer that he brings to PFM Corp of "0.5% of turnover of each account brought". The contract also includes a non-solicitation and post-termination restraint for cascading periods of 12 months, nine months and six months from termination of his employment.
There are a series of emails in evidence between Mr Hardaker (acting on behalf of PFM Corp) and employees of Everx Pty Ltd, a customer of the Company, over the period from 9 May to 7 July 2022 regarding the delivery of various items of medical equipment and printing equipment for that company. It is not in dispute that this involved Mr Hardaker soliciting successfully the business of a customer of the Company.
[7]
Terms of the Contract and the Undertaking
The Contract (which was signed by Mr Drewes on behalf of the Company) described Mr Hardaker's role and responsibilities as follows:
I would like to offer you full-time employment with Janala Pty Ltd operating as Cope Sensitive Freight ("the Company") under the following terms and conditions of this contract.
…
Position
You will be employed on a full time basis in the position of National Site to Site Project Manager. In this position, you will report to the National Site to Site Manager, or as otherwise directed by the Company.
Commencement
Your employment will commence on 17th Nov 2014.
When you commence your employment, your manager will outline your specific responsibilities and will be responsible for your induction/training. They will also be responsible for your ongoing performance review.
…
Hours of work
The Company requires you to work 38 ordinary hours per week. It is agreed that your ordinary hours of work may be averaged over a period not exceeding 26 weeks.
Because of the nature of your position, you agree to work reasonable additional hours required to perform the duties of your position which may, from time to time, require work outside normal business hours. Your remuneration includes compensation for all reasonable additional hours you work in order to fulfil the requirements of your role.
Position description and duties
A position description outlines the purpose, key duties and responsibilities of your role. From time to time, the Company may review and modify your duties and responsibilities to meet the Company's business needs. You must also perform other duties which you are capable of performing, as requested by the Company.
You will:
• perform the duties and tasks as required by the Company, and perform them responsibly, honestly and in a proper and efficient manner,
• use your best endeavours to promote and enhance the interests, welfare, business, profitability, growth and reputation of the Company,
• not internationally do anything that is or may be harmful to the Company,
• report to the Company promptly, all information and explanations as required in connection with matters relating to the employment or the business of the Company,
• comply with all lawful and reasonable directions given by the Company, and
• take reasonable care for your own health and safety and for the health and safety of other persons, including persons working under your direction or supervision.
[8]
Whether the non-compete restraint in the Contract is void as an unreasonable restraint of trade
[9]
Relevant principles
While at common law a restraint of trade is contrary to public policy and void unless justified by the special circumstances of the particular case, the position is different in New South Wales. As a result of s 4(1) of the Restraints of Trade Act 1976 (NSW), a restraint of trade is valid to the extent to which it is not against public policy, even if not in severable terms. Under that provision, the correct approach is to determine first, whether the alleged breach (independently of public policy considerations) will infringe the terms of the restraint properly construed; second, whether the restraint in its application to that breach is contrary to public policy; and third, if it is not, the restraint is valid in its application to the alleged infringing conduct unless the Court makes an order under s 4(3) of the Restraints of Trade Act. Hence, in determining the validity of a restraint, the effect of s 4(1) is to focus attention on the alleged breach, rather than imaginary or potential breaches: Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 at 355, [59]-[62]. It was not contended in the present case that s 4(3) was relevant.
The validity and reasonableness of the restraint is to be determined at the time it is entered into, although the court may take into account future events which could have been foreseen. However, when exercising its discretion to grant and fashion injunctive relief, the Court considers matters as at the date of the hearing which are relevant to the discretion to withhold relief: Isaac at [63]; John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [46].
As to the first question identified at [43], the alleged breach is Mr Hardaker's commencement of employment with PFM, a competitor of the Company, on 2 May 2022 and any transactions conducted through FSS and FSS Pty Ltd following termination of his employment. There is no dispute that this infringes the non-compete restraint in the Contract.
As to the second question, a non-compete restraint as it applies to the alleged breach will not be contrary to public policy if it is reasonable as between the parties and not unreasonable in the public interest. The former turns on whether the covenantee has a legitimate interest capable of protection by a restraint of trade and whether the restraint is no more than reasonably necessary for the legitimate protection of that interest. In Tullett Prebon (Australia) Pty Ltd v Simon Purcell [2008] NSWSC 852; (2008) 175 IR 414, Brereton J (as his Honour then was) said at [47]:
A restraint of trade is not contrary to public policy if it is reasonable as between the parties, and not unreasonable in the public interest, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public [Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565; Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 706-707; Lindner v Murdock's Garage (1950) 83 CLR 628 at [653]. Whether 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. A covenantee is not entitled to be protected against mere competition; the legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter [Vanderwell Products Ltd v McLeod [1957] RPC 185; Tank Lining Corporation v Dunlop Industries Ltd (1982) 140 DLR (3D) 659 at 664], including trade secrets and confidential information, and goodwill including customer connection. The validity of a restraint is to be judged at the time at which the contract is made, by reference to what the restraint entitles or requires the party to do, rather than what they intend to do or have actually done [Nordenfelt, 573-574; Commercial Plastics Ltd v Vincent [1964] 3 WLR 820 at 829; Curro v Beyond Productions Woolworths Ltd v Olson [2004] NSWCA 372, [40]].
[10]
Consideration
The Company relied on both confidential information and goodwill (including customer connection) as the protectable interests to support the non-compete restraint in the Contract. The onus is on the Company to show that the restraint goes no further than is reasonably necessary to protect those interests: Buckley v Tutty (1971) 125 CLR 353 at 377; [1971] HCA 71.
In relation to confidential information, the only evidence of confidential information to which, at the date of the Contract, it was anticipated that Mr Hardaker would have access, is that identified in the definition of "Confidential Information" in the Contract (see [34] above). This includes "client lists, client details, sales and marketing information and techniques, price lists". It is well established that customer information which gives the names and contact details for clients and their pricing and other requirements, are confidential information for this purpose: see Pathfinder Systems Australia Pty Ltd v Austact Pty Ltd [2006] NSWSC 892 at [6]; Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak (2006) 67 NSWLR 569; [2006] NSWSC 844 at [140]-[144].
In relation to customer connection, the evidence establishes that the nature of Mr Hardaker's role from the commencement of his employment would require him to deal directly with relevant individuals from key clients of the Company, particularly in the healthcare sector. While his role did not make him the "human face" of the Company, it could be reasonably anticipated at the time his employment commenced that he would develop relationships with customers in the course of his employment which would be beneficial to his employer and that is to be regarded as an interest capable of reasonable protection on cessation of the employment: see [53] above.
In my opinion, the restraint period of six months is reasonable for the following reasons and a non-compete restraint for that period is not unreasonable in the public interest. First, while Mr Hardaker's role was operational, throughout his employment he had a client facing role with the Company's customers, particularly in the healthcare sector. He also had knowledge of the confidential information of the Company's relationships with its customers, including those in the healthcare sector. His knowledge of the pricing and terms of the Company's arrangements with its customers would make it easier for him to solicit custom from those customers (for the benefit of PFM Corp). That client facing role brought him into contact with the key employees of the customers in the healthcare industry who determined which supplier provided specialist freight services. Second, the healthcare sector was throughout the period from the commencement of Mr Hardaker's employment of strategic importance to the Company. Third, a restraint on Mr Hardaker from competing for six months would allow the Company sufficient time to introduce a new employee to its customers (particularly those in the healthcare sector) and to establish, through that person's efficiency and effectiveness, that the customer's needs could be adequately met given the frequent and regular interaction required by someone in that role. There is no evidence to suggest that Mr Hardaker's skills at the operational level were technical or required any particular skill or significant training. Fourth, the period of six months is supported by the agreement of the parties to which some weight may be given: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 337 per Kirby P; Woolworths Ltd v Olson [2004] NSWCA 372 at [39]; Tullett Prebon at [53].
[11]
Whether the Undertaking is binding as a contract
The Company did not press at the hearing the contention originally put that the Undertaking is a deed. Accordingly, the only basis on which it is contended that the Undertaking is binding on Mr Hardaker is that it is a unilateral contract. This turns on whether the Company gave consideration for the promises made by Mr Hardaker in it. To determine whether this is so, it is necessary to look at the circumstances leading up to the execution of the Undertaking by Mr Hardaker on 2 February 2022.
[12]
Circumstances leading to execution of the Undertaking
In October 2021, Mr Hardaker registered a partnership between himself and another employee of the Company, Leith Whitehurst, trading as "Freight Solution Services" (FSS). Subsequently, on 12 January 2022, Mr Hardaker and Mr Whitehurst registered a company called Freight Solution Services Pty Ltd (FSS Pty Ltd).
In the period from 2 December 2021 to 12 January 2022, Mr Hardaker issued 12 invoices in the name of FSS for services performed in moving sensitive freight, most of which were to customers of the Company including one for $33,626.50 (including GST). A further invoice issued by FSS and dated 18 December 2021 was addressed to "COPE Transport" (ie. the Company) in the amount of $4,510 (including GST) for "propping works" at an address in Macquarie Street, Sydney involving the removal of an MRI machine from the premises (invoice 0132). Propping work involves stabilising an area that needs to be used during freight transport. The Company would normally contract out propping work and it requires engineer certification. However, it appears that on this occasion Mr Hardaker arranged for propping work to be done by third parties and for the cost of that work to be invoiced to the Company.
On 5 January 2022, Ms Hart became aware of invoice 0132 because it was necessary for FSS to open an account with the Company before the invoice could be paid (as it ultimately was). When it became apparent to Ms Hart that Mr Hardaker and Mr Whitehurst were the persons who operated FSS, Ms Hart informed Mr Drewes and it was arranged that he would discuss the issue with Mr Hardaker when he returned from leave.
On 17 January 2022, Mr Drewes met with Mr Hardaker and Mr Drewes asked Mr Hardaker to explain what the FSS partnership was all about. Mr Hardaker told Mr Drewes that he established FSS with Mr Whitehurst because he was thinking of leaving COPE in about 3-5 years when he planned to move to the north coast of New South Wales and undertake some sensitive freight brokering work and that FSS was "purely for the future".
Mr Drewes responded that there was a potential conflict of interest involved if there was trading and that he would organise for Ms Hart to meet with Mr Hardaker to get some documentation for him and Mr Whitehurst to sign "to ensure that all parties are protected". It is apparent that Mr Hardaker's statement that FSS was "purely for the future" was inaccurate as the invoices in evidence show that FSS had been operating since at least early December 2021. Mr Hardaker also did not disclose at the meeting (or at any later time) that he and Mr Whitehurst had established FSS Pty Ltd (which occurred on 12 January 2022). The Company did not become aware of the establishment of FSS Pty Ltd until 2 February 2022, shortly after Mr Hardaker signed the Undertaking.
[13]
Did the Company give consideration for the Undertaking?
The modern concept of consideration is that it is the price for which a promise is bought, that price being an act or forbearance or the promise thereof: Dunlop v Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 855; Beaton v McDivitt (1987) 13 NSWLR 162 at 168; Heydon on Contract (2019, Lawbook Co) at [5.80]. By "price" is meant that the act or forbearance, or the promise thereof of one party is the quid pro quo for the giving of the promise made by the other party.
For Mr Hardaker it was submitted that the Undertaking was not binding on him because no promise was made by the Company in return for it or, if there was, it was illusory.
I accept that in the present case the Company did not make an express promise to Mr Hardaker not to terminate his employment. However, that is not the end of the matter. An actual forbearance to sue will constitute consideration for a promise where it is evidence of an implied promise to forbear or, alternatively, it is given at the express or implied request of the other party: Official Trustee in Bankruptcy v Lopatinsky (2003) 129 FCR 234; [2003] FCAFC 109 at [103] per Whitlam and Jacobson JJ.
The first alternative referred to in Lopatinsky recognises that a person who without making any express promise to do so simply forbears from enforcing a claim may be held to have impliedly promised to forbear, see eg. In re Wyvern Developments Ltd [1974] 1 WLR 1097 at 1103; Chitty on Contracts (34th ed, 2021, Sweet & Maxwell) at [6-056]. An example of this alternative is Electroboard Administration Pty Ltd v O'Brien [1999] NSWCA 452. In that case, the defendant, Mrs O'Brien, had entered into a written employment agreement with her employer, the plaintiff, which did not include any post-termination restraint of trade. As a result of certain activities in the Melbourne office of the plaintiff involving an employee, legal advice was obtained and it was decided to require all sales persons and senior management, including Mrs O'Brien, to sign an undertaking which contained a restraint on competing with the plaintiff for three months after termination of her employment. Mrs O'Brien initially refused to sign the undertaking. The primary judge made the following findings as to what happened next: (see Electroboard Administration Pty Ltd v O'Brien (Cohen J, unreported, 13 March 1998)).
Mrs O'Brien said that Simone Jagle said words to the effect that if they did not sign they would not get paid. Mrs O'Brien said that from that statement she was of the view that if she did not sign the document, the plaintiff would terminate her services. She said that she could not afford to lose her employment and she accordingly signed the addendum and handed it back to Simone Jagle. I should add that evidence has established that Simone Jagle was not at that time in the plaintiffs' employment, Mrs O'Brien has since said that it must have been another assistant to Mr Bolton, but that whoever it was, the words that she had set out were in fact spoken.
[14]
Whether the non-compete restraint in the Undertaking is void as an unreasonable restraint of trade
Each of the restraints in cll 1, 2 and 3 of the Undertaking is a restraint of trade. The question which arises is whether they are an unreasonable restraint of trade and therefore void. The Company again relies on confidential information and goodwill as the protectable interests.
In relation to confidential information, the evidence establishes that during the course of his employment, Mr Hardaker had access to the Company's supplier lists, names and contacts; client/customer lists, names and contacts; sales and marketing information; financial information relating to Specialist Sensitive Freight Services component, including daily revenue reports, and employee contact information and remuneration information. It is also unchallenged that this information was not in the public domain, is not readily available to all the Company's employees, can only be accessed by employees who specifically require it to perform their duties, and is kept securely on the Company's internal IT systems and treated confidentially by the Company. I accept Mr Drewes' evidence that this information is confidential to the Company because skill and effort was expended to acquire it, tight controls are placed by the Company on who can access it and it was made known to the employees that the material was regarded as confidential: see Wright v Gasweld Pty Ltd [1991] 22 NSWLR 317 at 334.
Mr Hardaker, throughout his employment with the Company, had limited access to only the parts of this information that were relevant to his work. His use could be seen from the activity log that applied to him.
Mr Hardaker accessed the Customer Analysis folder on the Company's SharePoint System 68 times during the period 23 August 2021 to 28 April 2022. In this folder, Mr Hardaker accessed and previewed various documents including two which concerned healthcare customers and another which disclosed the Company's current pricing structure with a customer and the duration of its contract with a customer in the gaming machine area of the Company's business which Mr Hardaker did not work in. Mr Hardaker accessed and previewed the document after tendering his resignation from the Company. Mr Britza gave evidence that the information in all these documents contains confidential and commercially sensitive information to the Company.
[15]
Conclusion
For the above reasons, in my opinion the issues for determination should be resolved as follows:
1. Whether the post-employment non-compete restraint in the contract of employment is void as an unlawful restraint of trade.
No, and the period of the restraint is reasonable.
1. Whether the Undertaking is binding as a contract on Mr Hardaker.
Yes.
1. If the Undertaking is binding, whether the non-compete restraints contained within it are void as an unlawful restraint of trade.
No, but the non-compete restraints in cll 1, 2 and 3 of the Undertaking should be read down to six months from termination of the employment.
I will list the matter for directions for the purpose of determining final orders and dealing with the other relief claimed in the Amended Summons.
[16]
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: 05 May 2023
Mr Hardaker also worked in the printing side of the business in the 12-month period before he resigned, supervising the transport of equipment such as large printers to customers in the printing sector.
Mr Hardaker's role throughout his employment with the Company principally comprised overseeing the execution of projects for the delivery of sensitive freight on a national basis, assisting and supervising state managers and site project managers where projects were particularly complex and/or required additional resources, developing and maintaining client connections nationally for the Company, and being a main point of contact for customers, on an operational level, with whom he dealt.
Mr Hardaker's day-to-day activities included taking direct enquiries from the Company's key customers in the healthcare sector (and also in the printing sector during the last 12 months of his employment) in relation to upcoming work requiring site inspections, providing quotes for particular jobs based on the site inspection and the Company's pricing schedule, resolving enquiries from the Company's internal account management team for various customers, conducting and/or assisting with site inspections, engaging third-party sub-contractors needed to facilitate a project, and managing and overseeing the project to completion. He was on site for high-profile or large jobs when a particularly significant item of equipment was being delivered to a customer.
As part of his role, Mr Hardaker supervised the Company's Site Project Manager for New South Wales and each other Australian state and territory (around 10 in total).
Mr Hardaker had complete autonomy in managing the customer projects for which he was responsible, including in relation to how work on the project was to be performed, the amount quoted (and ultimately charged) by the Company to its customer and what contractors the Company would engage to assist the customer's project. It was often the case that Mr Hardaker negotiated the price for particular jobs, even though the customer may have had a contract with the Company.
The Company had a team called the "Solutions" team which serviced a large proportion, although not all, of the Company's customers. The Solutions team had primary responsibility for managing the relationship with those customers who had an account with the Company, including the negotiation of the contract with those customers. The Solutions team do not service the Company's "one-off" or ad hoc customers.
For every customer which had an account with the Company, including all significant or major customers, the account manager was a member of the Solutions team. Mr Hardaker was not part of the Solutions team. While he was the account manager for some clients, this was only a small proportion of clients, measured in both number and contribution to sales revenue, over the period of his employment. In the 13 months before Mr Hardaker's departure from the Company, he was the account manager for only five of the 1,026 customers serviced by the Company and those customers accounted for less than 1% of the sales revenue in that period.
However, while Mr Hardaker did not have a significant client management role as part of the Solutions team, the evidence establishes that in servicing customers in the healthcare sector throughout the period of his employment, he dealt regularly and frequently with the people within each customer's organisation who determined which sensitive freight service provider would be engaged. Mr Drewes' evidence was that these people were the projects and logistics managers of the customers and Mr Hardaker spent considerable time with these individuals, including when conducting onsite inspections, providing quotes for jobs, and then supervising the delivery of the work. These interactions were by telephone, by email and in person. In many cases, Mr Hardaker would, by providing the quote for the job, be the person within the Company who effectively negotiated the price for the job, even in the case of customers who had entered into an overarching contract with the Company, because the prices needed to be negotiated and agreed on a job-to-job basis. Mr Hardaker did this with both account customers and "one-off" customers.
Mr Hardaker was regularly and frequently contacted by the project and logistics managers employed by the Company's healthcare customers in order to discuss with them new jobs, provide a quotation, and execute work on behalf of the Company. As a consequence of this, Mr Hardaker was the point of contact within the Company for a number of significant customers of the Company in the healthcare sector despite not being a part of the Solutions team.
It follows from the above that his role was both operational and client facing. The client-facing aspect of the role included both providing quotes and negotiating rates directly with the key personnel within the Company's healthcare sector customers, and also managing, onsite, the performance of services by the Company to those customers. These customers regularly contacted him directly when they needed work to be done as he was the principal point of contact for them within the Company. While the Solutions team had the responsibility to negotiate ongoing contractual arrangements with account customers, Mr Hardaker also had a significant role in servicing those customers and maintaining the client connection, particularly as the Company was in competition with its other direct competitors referred to earlier.
During the course of his employment, Mr Hardaker had access, and was exposed, to commercially sensitive information belonging to the Company, including its customer lists (with names and contact details), its supplier lists (with names and contact details), quotes and pricing information for jobs, financial information relating to the sensitive freight services provided by the Company (including daily revenue reports), the terms of agreements between the Company and its customers including pricing information for work that was contracted out to sub-contractors, and employee contact details and remuneration.
The Company maintains two computer databases to store customer information. One referred to as the "V6" portal, which is used to manage customer bookings, has been in place since 2014. All of the Company's employees, except for drivers, have access to this database, using their own unique and confidential user name and log in details.
In addition, the Company has since around 2016 used the Microsoft SharePoint platform to store commercially sensitive information relating to customers, which is not accessible to all of the Company's employees. Documents stored on SharePoint include all customer lists, quotes, pricing information, jobs completed, tender information, and costing and pricing constraints for the Company's customers. The information stored on SharePoint is not publicly available and is commercially sensitive to the Company. Mr Britza's evidence, which I accept, was that the folders containing customer lists, quotes, pricing information, jobs completed, and tender information are all confidential and commercially sensitive because if a competitor were to obtain access to this information it would be able to price its freight services at a price lower than the Company.
During Mr Hardaker's employment with the Company, it took a number of steps to ensure that the information on the Company's SharePoint database was protected from unauthorised access, use, download or disclosure, including: (a) ensuring that there were confidentiality clauses in employees' employment contracts; (b) requiring employee-specific and unique password and login details to be used in order to access the database; (c) limiting access to certain documents and information on the database to particular employees where it was relevant to their role; and (d) requiring employees to complete a training course annually covering the Company's policies about, among other things, access, use and maintenance of the Company's confidential information.
Mr Hardaker had access to the Company's SharePoint database though his own login and password. It is apparent from the evidence of Mr Britza and Mr Jones that Mr Hardaker did have and obtain access to information in the SharePoint database of the kind referred to in [25] above during his employment, as evidenced by his actual accessing of various documents of this kind on numerous occasions in the period from 7 September 2021 to 5 April 2022 relating to two significant customers in the healthcare sector and one significant customer in the electronic gaming machine sector.
Although the paragraph headed "Position description and duties" refers to there being a "position description" for his role and responsibilities, Ms Hart's evidence was that no document of that kind could be located. However, Mr Drewes (to whom Mr Hardaker reported when he commenced his employment) gave evidence that Mr Hardaker's role remained unchanged throughout the period from the commencement of his employment with the Company, which I have summarised above. I infer that Mr Drewes made known to Mr Hardaker when his employment commenced that this would be the nature of his role.
The contract contained a restriction on Mr Hardaker's use of confidential information as follows:
Confidentiality
In the course of your employment you will be privy to information that is confidential to the Company and/or its clients, whether in written, computerised or oral form (Confidential Information), for the protection of the Company and customer privacy, you must not at any time, either directly or indirectly, disclose or communicate to any person any Confidential Information.
'Confidential Information' means:
• any information which is designated by the Company as confidential;
• any information which comes to your attention during your employment and which, by reason of its character and/or the manner of its coming, is evidential confidential
and includes, but is not restricted to trade secrets, client lists, client details, sales and marketing information and techniques, price lists, source codes, procedure manuals and reference manuals, provided that information shall not be, or shall cease to be, Confidential Information to the extent that it comes to be in the public domain, unless this happens as a result of any unauthorised act or omission for which you are responsible.
You may reveal Confidential Information which:
• you are required by law to disclose, in which case you must immediately notify the Company of the requirement and must take all lawful steps and permit the Company to oppose or restrict the disclosure to preserve, as far as possible, the confidentiality of the Confidential Information,
• is in, or enters the public domain for reasons other than your breach of the contract of employment, or
• is disclosed to you by a third party legally entitles to disclose that information and who is not under an obligation of confidentiality to the Company.
Your obligations of confidentiality survive the termination of your employment.
The definition of "Confidential Information" refers in the first dot point to a designation by the Company of specific information as confidential. There is no evidence that any designation was made.
The Contract included a restraint on competition both during and after termination of his employment, as follows:
Non-competition
You will not, without the prior written consent of the Company, during your employment, either directly or indirectly in any capacity (including without limitation as principal, agent, trustee, beneficiary, executive, consultant or adviser) carry on, advise, provide services to or be engaged, concerned or interested in or associated with any business or activity which is competitive with any business carried on by the Company.
You will not, without the written consent of the Company, for a period of six (6) months after termination of your employment, however that termination occurs, directly or indirectly whether on your own account or for any person:
• be employed by or engaged by or interested in or connected with any business or activity which is competitive with any business carried on by the Company, or
• canvass, solicit, endeavour to entice away from the Company, or accept any approach from, any person or company which, either at the date of termination of your employment or at any time during the 12 months prior to such termination, was a customer or client of the Company; or
• solicit or endeavour to solicit any employee of the Company with the purpose of enticing that person away from the Company or procuring the employment or engagement of any such person by another business; or
• counsel, procure or otherwise assist any other person to do any of the acts referred to above.
To avoid doubt:
• each of the above restraints must be read and construed and will have effect as a separate severable and independent prohibition or restriction and will be enforceable accordingly, and
• you agree that if any of the above restraints or any part of them is held to be invalid or unenforceable for any reason, that restraint or part will be severed so that the remainder will remain valid and effective.
Nothing in this contract is to be taken as prohibiting you (whether directly or indirectly) from holding or acquiring shares in any publicly listed company.
This provision can be read as containing the following post-employment restraints for a period of six months after termination of his employment:
1. A prohibition against being employed or engaged by or interested in, or connected with, any business or activity of a competitor (non-compete restraint).
2. A prohibition against either:
1. canvassing, soliciting or endeavouring to entice away from the Company; or
2. accepting an approach from,
any customer of the Company at or during the 12 months prior to termination of his employment (non-solicitation restraint).
1. A prohibition against soliciting employees of the Company.
2. A prohibition against counselling, procuring or assisting another person to do any of the above things.
An additional prohibition on competing with the Company during his employment is contained in the following provisions:
Conflict of Interest
You must not, during the term of your employment, compete with the Company, or be involved with or interested in any capacity in a business competing with the Company other than by holding shares in companies listed on any recognised stock exchange.
You must not allow any conflict of interest to arise between you and the Company. If a potential conflict is likely to arise, or comes into existence, you must immediately notify your manager.
During your employment with the Company you will not undertake any other employment without the prior written approval from the Company.
The provision regarding termination of this employment is as follows:
Termination
Either party may terminate your employment at any time by giving the other party four weeks' notice in writing. The Company may waive all or part of your notice period.
If you are over 45 years and have more than 2 years service with the Company at the time of termination, you will be entitled to an additional week's notice.
The Company may, in its absolute discretion, pay you in lieu of all or part of the notice period, calculated on the basis of your total remuneration package, less statutory superannuation.
During any period of termination, the Company may, at its absolute discretion:
• require you to perform only such duties as the Company may determine or not to perform any duties at all,
• require you not to have any contact with any employees, customers or business associates of the Company other than normal social contact, and
• exclude you from all or any part of the Company's premises.
The Company may immediately terminate your employment for reasons including, but not limited to, where you:
• engaged in serious or gross misconduct,
• fail or refuse to comply with any reasonable and lawful direction given by the Company,
• cease to hold any mandatory qualification, licence or certificate that is necessary for you to perform your duties,
• commit an act of dishonesty or fraud, or
• commit any act of illegality reasonably deemed by the company to materially and adversely affect the Company or its associates.
Where your employment is terminated immediately, you are not entitled to notice or payment in lieu of notice, but shall be entitled to any accrued but unpaid annual leave.
The Undertaking is expressed to be "signed sealed and delivered" by Mr Hardaker, and provided relevantly as follows:
I, Lonnie Hardaker, National Site to Site Projects Manager of Janala Pty Ltd t/as COPE Sensitive Freight (COPE) … do undertake to COPE and the Supreme Court of New South Wales that:
1. I will cease, for the period of my employment with COPE and 12 months thereafter (Undertaking Period), operating (in any capacity) the business trading under the business name Freight Solution Services … (FSS), or any business or undertaking which provides the same or similar services as, or is competitive with, COPE and its related entities, unless express written consent is provided by COPE;
2. I will not, during the Undertaking Period, solicit, canvas, approach, deal with or accept any approach from, any person or organisation who is a current or prospective customer of COPE, with a view to performing services that are the same as or similar to the services provided by COPE, unless it is on behalf of COPE and for the purpose of performing your employment duties for COPE, unless express written consent is provided by COPE;
3. I will not, during the Undertaking Period, compete with COPE or its relates [sic] entities, or be involved with or interested in any capacity in a business competing with COPE other than by holding shares in companies listed on any recognised stock exchange, or with COPE's express written consent; ·
4. I will immediately cease and forever refrain from using or disclosing COPE's confidential information, other than as permitted by my contract of employment with COPE dated 11 July 2014, executed by me on 7 October 2014 (Employment Contract), or with COPE's express written consent;
5. I will fully and completely comply with each of my obligations pursuant my Employment Contract; and
6. I have provided COPE with all quotes issued and invoices rendered (or similar documents evidencing the nature of the services provided) by FSS which evidence services proposed to be or performed by FSS between October 2021 and present, the person or entity those services were provided to, and the fee quoted or invoiced by FSS for those services.
The Undertaking contains the following post-employment restraints lasting for a period of 12 months after termination of his employment:
1. An undertaking to cease operating the FSS business or any similar business (cl 1).
2. A prohibition against soliciting, canvassing, approaching, dealing with or accepting any approach from, any person, or organisation who is a current or prospective customer of the Company, with a view to performing services that are the same as or similar to the services provided by the Company (cl 2).
3. A prohibition against competing with the Company or its related entities, or being involved with or interested in any capacity in a business competing with the Company other than by holding shares in companies listed on any recognised stock exchange (cl 3).
The effect of cl 1, cl 2 and cl 3, if valid, is to extend the period of the non-compete restraint and non-solicitation restraint in the Contract by six months to 22 April 2023.
As stated in the above passage the legitimate interests which are capable of protection by a restraint of trade in a contract of employment include the employer's (a) trade secrets and confidential information and (b) goodwill including customer connection. The identification of the nature and extent of each such interest in the particular case is critical for two reasons: first, without such an interest the restraint is not reasonable; and second, where such an interest is established, it informs the extent of the restraint which is reasonable to protect it: Belflora Pty Ltd v Vinflora Pty Ltd (2021) 106 NSWLR 67; [2021] NSWCA 178 at [46] per Brereton JA.
In relation to the first of these legitimate interests, an employer is entitled to protection by a non-compete clause from the possibility that its trade secrets or confidential information could be used by the employee to the employer's disadvantage after termination of the employment: Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [12]-[13]; Provida Pty Ltd v Sharpe [2012] NSWSC 1041 at [20]. The employer is generally not required to identify the confidential information with precision, given that what the court needs to be satisfied of is that, at the date of the contract, it is anticipated that the employee will become aware of confidential information of the employer and that there is potential prejudice to the employer's interests from that information being divulged to a competitor after termination of the employment: Emeco International Pty Ltd v O'Shea (No 2) [2012] WASC 348; 225 IR 423 at [98]-[108]; McMurchy v Employsure Pty Ltd [2022] NSWCA 201 at [142].
Where the employment contract contains a covenant against the use of confidential information and a non-compete restraint, the non-compete restraint may be justified as a further protection for the confidential information of the employer given the potential difficulties in proving a breach of the former: see Woolworths Ltd v Olson [2004] NSWCA 372; 55 AILR 200-133 at [38] and [67]; Provida Pty Ltd v Sharpe [2012] NSWSC 1041 at [20].
For Mr Hardaker, it was submitted that it is only information in the nature of trade secrets or proprietary information of a kind which is not general knowledge in the industry which is capable of supporting a non-compete clause. Reference was made to Mason v Provident Clothing and Supply Co Ltd [1913] AC 724 at 733-734, Stacks Taree v Marshall (No. 2) [2010] NSWSC 77 at [44(i)-(j)] and Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at [38] and [41]. It is true that, in the passages referred to in each of these cases, the court referred to the protectable interest as a "trade secret", although I note that in Harlow, White J (as his Honour then was) referred in other passages to the protectable interest as being "trade secrets or confidential information" (see [25], [30] and [42]).
However, it is well established that the employer's confidential information is a legitimate interest capable of protection by a restraint of trade even if it is not a trade secret: see eg. Cactus Imaging at [12]. While the word "proprietary" is sometimes used to refer to the legitimate interests capable of protection by a restraint, the word "proprietary" is used in a special sense to refer to legitimate commercial interests: Isaac at [65]. Further, there is inherent difficulty in assessing whether confidential information is "proprietary" in nature, given the uncertainty as to whether information can ever be "property": see Meagher Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2014, Lexis Nexis) at [42-150]. The preferable approach is to test whether the information meets the established tests for determining if it is confidential in nature: see Wright v Gasweld (1991) 22 NSWLR 317 at 334; Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 at [40].
As to the protection of goodwill, the essence of which is the connection with customers, it is recognised that the employer is entitled to protect itself against the possibility of loss which may otherwise arise from the mere existence of personal relations between its customers and its former employee, on the basis that the customer connection achieved by the employee during his or her employment is an advantage accruing to the employer: Lindner v Murdock's Garage (1950) 83 CLR 628 at 636 per Latham CJ and 655 per Kitto J.
It is not necessary to show that the employee has become "the human face" of the business, in the sense of being in a position to control whether the customers remain with or leave the business, and it is sufficient if the employee, as one member of a team, has a strong connection with customers with whom he or she dealt which gives rise to the possibility of their custom following the employee when he or she leaves: Jardin v Metcash Ltd [2011] NSWCA 409; 285 ALR 677 at [94]-[97]; Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267 at [38]-[39]. In Jardin, Meagher JA (with whom Campbell and Young JJA agreed) said at [97] regarding the statements in the cases about the employee being the "human face" of the business:
These statements are not, however, to be understood as requiring that the employee be proved to be in a position to control whether the customer remain with or leave the business. The employer is entitled to protection against the use of "personal knowledge of and influence over" its customers, which the employee might acquire in the course of his or her employment, so as to undermine its customer connections: Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 709; Lindner v Murdock's Garage (1950) 83 CLR 628 at 635, 636,645, 647 and 654; [1950] ALR 927at 929-30, 930, 935-6, 936-7and 940-1 (Lindner). It is against the "possibility" of its business connection being adversely affected by the use of that "personal knowledge and influence" that the employer is entitled to be protected: Lindnerat CLR 636,645 and 654; ALR 930, 935-6 and 940-1 . Latham CJ (dissenting) summarised the relevant principle as follows (at CLR 36; ALR 930 ):
Where an employee is in a position which brings him into close and personal contact with the customers of a business in such a way that he may establish personal relations with them of such a character that if he leaves his employment he may be able to take away from his former employer some of his customers and thereby substantially affect the proprietary interest of that employer in the goodwill of his business, a covenant preventing him from accepting employment in a position in which he would be able to use to his own advantage and to the disadvantage of his former employer the knowledge (2011) 285 ALR 677 at 697 of and intimacy with the customers which he obtained in the course of his employment should, in the absence of some other element which makes it invalid, be held to be valid.
Where, as here, the contract of employment contains both a non-solicitation restraint and a non-compete restraint, the reasonableness of the latter must be assessed by reference to the adequacy of the protection for the legitimate interests of the employer offered by the former: Stacks Taree v Marshall (No 2) [2010] NSWSC 77 at [63]-[65]. If, on the facts of the case, the non-solicitation restraint provides adequate protection, the non-compete restraint will not be necessary to protect the customer connection. However, it is recognised that the difficulty of enforcement of a non-solicitation restraint may mean that it does not provide sufficient protection to the employer: Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; [2012] FCAFC 111 at [51]-[53].
If the employer establishes a legitimate interest to be protected, it becomes necessary to determine whether the duration of the restraint is reasonable. If the Court concludes that a lesser period than that stipulated in the contract is reasonable, it can read down the restraint under s 4(1) of the Restraints of Trade Act: Employsure Ltd v McMurchy; Employsure Ltd v Kumaran [2021] NSWSC 1179 at [89] and [202]. In Cactus Imaging, Brereton J said at [36]:
In this case it is necessary to consider the duration of the restraint, bearing in mind that it is supported by both protection of customer connection and protection of confidential information. Generally, the test of reasonableness for the duration of a non-solicitation covenant, when it is supported by customer connection, is what is a reasonable time during which the employer is entitled to be protected against solicitation, which in turn depends on how long it would take a reasonably competent replacement employee to show his or her effectiveness and establish a rapport with customers: Stenhouse Australia Ltd v Phillips; Dalysmith Corporation (Australia) Pty Ltd v Cray Personnel Pty Ltd (Young J, 14 April 1997, unreported). A related, albeit subsidiary, consideration is how long might the hold of the former employee over the clientele be expected to last before weakening: Koops Martin Financial Services Pty Ltd v Reeves (at [88]). But where protection of confidential information is involved, considerations such as how long the information is likely to remain current and of commercial advantage will also be relevant.
More recent authorities have indicated that while the matters referred to by his Honour in the above passage are clearly relevant to the reasonableness of the duration of the restraint, there is no relevant "test" as such. In Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267, Allsop P (with whom Hodgson JA and Handley AJA agreed) said at [43]:
There is no legally required test in these circumstances. The use of one test or another depends on the facts and the evaluation of the approach that is reasonable. The judge is required to evaluate the evidence about connection and adopt an appropriate approach to assessing what is required to protect reasonably the connection of the former employer. The proper approach was described in Stenhouse Australia Ltd v Phillips [1974] AC 391 at 400 set out by Hodgson JA in Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25 at [36]-[37] …
Allsop P also said at [45] that regard should also be had to what the Privy Council said in Stenhouse Australia Ltd v Phillips [1974] AC 391 at 402:
… The question is not how long the employee could be expected to enjoy, by virtue of his employment a competitive edge over others seeking the clients' business. It is, rather, what is a reasonable time during which the employer is entitled to protection against solicitation of clients with whom the employee had contact and influence during employment and who were not bound to the employer by contract or by stability of association. This question … their Lordships do not consider can advantageously form the subject of direct evidence. It is for the judge, after informing himself as fully as he can of the facts and circumstances relating to the employer's business, the nature of the employer's interest to be protected, and the likely effect on this of solicitation, to decide whether the contractual period is reasonable or not. An opinion as to the reasonableness of elements of it, particularly of the time during which it is to run, can seldom be precise, and can only be formed on a broad and common sense view.
This approach taken in Hanna was approved by the Full Federal Court in Informax International Pty Ltd v Clarius Group Ltd (2012) 207 FCR 298; [2012] FCAFC 165 at [94]:
The issue is the length of the restraint. Brereton J in Cactus Imaging in the passage already quoted at [75] above posed the test for reasonableness in relation to the duration of a non-solicitation covenant given by an employee as dependent upon how long it would take a reasonably component replacement employee to show his or her effectiveness and establish a rapport with customers. His Honour relied upon the observations of Young J in Dalysmith who in turn relied upon the American cases considered by Professor Harlan M Blake in his article "Employee Agreements not to Compete" (1960) 73 Harv L Rev 625, p 677. Other judges have preferred a different approach which focuses upon the time that it would take to sever the relationship built up between the former employee and the clients for whom work was performed: Stacks Taree at [66]-[72]. Considering the two approaches, Allsop P (with whom Hodgson JA and Handley AJA agreed) in Hanna v OAMPS Insurance Brokers Ltd (2010) 202 IR 420 ; [2010] NSWCA 267 (at [43]-[44] ) thought that there is no legally required test and that the use of one test or another depended upon what was required, in the circumstances, to protect the connection of the former employer. Allsop P noted that there is a balance to be struck between reasonable protection to which the former employer was entitled and the right to practice a trade or profession of the former employee. We agree with this approach.
While the effect of a six-month restraint would prevent Mr Hardaker from working in the field where he had gained most of his experience, there is no evidence to suggest that it would stop him from working entirely. In particular, the restraint does not prevent him from being employed by a company which does not compete with the Company. The evidence discloses only four companies were competitors of the Company in the relevant period, so that there would be a variety of roles he could undertake within that six-month period, including in the freight business for entities which did not conduct a sensitive freight business, which would not breach the non-compete restraint. In my opinion, a six-month period of restraint provides a balance between the reasonable protection to which the Company was entitled and Mr Hardaker's right to practise a trade or profession.
For Mr Hardaker, it was submitted that a six-month period of restraint was more than reasonably necessary to protect the Company's legitimate interest in both customer connection and confidential information for a number of reasons and the period of the restraint should only be four weeks. I will deal with each below.
First, it was submitted that the proper characterisation of Mr Hardaker's role was that he was a tradesperson working on the tools who, of course, would be anticipated to have interactions with customers during his employment but that would be on the basis of his reputation for competence and reliability. He could not be characterised as the human face of the business. I accept that Mr Hardaker was not the human face of the business, but that is not the test: see [53] above. Nor do I consider it correct to characterise Mr Hardaker as merely a "very competent operational person on the tools". The evidence establishes that over a long period he developed a close working relationship with the key persons within the key customers in the health services sector who were important in determining where the work of those customers would go. PFM Group clearly thought so given the financial incentive it gave him for bringing in new customers (see [30] above). While the evidence establishes that the account manager within the Solutions team had a significant role in protecting the customer connection, it is also clear from the evidence that Mr Hardaker had a personal relationship with the key individuals within the customer organisations who determined where their work would go. This gave him personal knowledge of and influence over the customers of the Company which he had acquired during the course of his employment and it is against the possibility of his using that knowledge and influence to divert custom away from the Company which the Company is entitled to protect for a reasonable period.
Second, it was submitted that the customer service cycle of the Company is very short, involving the moving of equipment weekly or thereabouts, so that the Company has the opportunity to quickly re-establish a connection between each customer and the tradespeople doing the work. This was said to go to both the question whether a restraint was appropriate and to the length of the restraint. In my opinion, this frequency of dealing with the customers works both ways. It also favours a longer restraint than four weeks because it is through the regular interactions between Mr Hardaker and the Company over a lengthy period (ultimately a little over seven years) that he was able to develop a personal knowledge of and influence over customers. The fact that the Company would have the opportunity of regular interaction with each customer after Mr Hardaker's departure does not detract from the fact that he has already through that frequency of contact during his employment developed the close connection against which the Company seeks protection.
Third, it was submitted that a shorter period of four weeks was reasonable because most of the major customers were on contracts which would be negotiated by the Solutions team and not Mr Hardaker. However, in my opinion, the evidence indicates that the fact that the Company has a contract with a customer does not give it exclusive control over the relationship with a customer who is able to use other competitors of the Company to provide sensitive freight services.
Fourth, it was submitted that the Company has more than adequate protection from the non-solicitation clause in the Contract which extends to both active solicitation of custom and passive acceptance of an approach by a customer. It was said to be more than adequate because Mr Hardaker's role was merely that of a tradesperson. However, I have concluded that his role was not limited to that of a tradesperson and importantly, the authorities recognise that in an appropriate case a non-solicitation clause will not give adequate protection to the employer: see [54] above. In my view, this is such a case.
After the meeting, Mr Drewes settled a letter to be sent to Mr Hardaker setting out the Company's position, and requiring him to sign an undertaking. The original form of the undertaking provided to Mr Drewes to settle provided that the post-employment restraints would last for a period of six months from termination of Mr Hardaker's employment, but Mr Drewes extended this period to 12 months. His reasons for doing so are referred to at [111] below.
The letter was signed by Mr Drewes and was then sent together with the Undertaking to Mr Hardaker by email on 19 January 2022, following a further meeting between Ms Hart and Mr Hardaker on 19 January 2022 (which was not attended by Mr Drewes). The Undertaking attached to the letter was in the form which Mr Hardaker ultimately signed on 2 February 2022.
The letter of 19 January 2022 set out the background regarding the establishment of FSS, and its performance of services in competition with COPE. It then set out relevant provisions of the Contract and s 183 and s 184 of the Corporations Act 2001 (Cth) and stated that the Company considered that the conduct of Mr Hardaker and Mr Whitehurst as detailed in the letter constituted a blatant and deliberate breach of his Contract, as well as his statutory and common law obligations to COPE. The letter then stated that Mr Hardaker was required by 4:00pm on 21 January 2022 to provide the Company with quotes issued and invoices rendered by FSS for the period from October 2021 to the present, and provide a signed undertaking in the form attached to the letter.
The letter stated the consequences of compliance or non-compliance with these requirements as follows:
5.2 In the event that you comply with the above within the time specified, COPE is open to discussing these matters further, including discussions in relation to the terms on which it will be prepared to consent FSS continuing to trade (during your continuing employment with COPE).
5.3 If you fail to comply with the above within the time specified, COPE will take all further action it considers necessary to protect its legitimate business interests, including instituting legal proceedings against you and FSS seeking injunctive relief preventing you (and FSS) from continuing to trade in competition with COPE, as well as penalties, damages and costs.
5.4 COPE reserves its rights in relation to the recovery of any damages suffered as a result of the conduct outlined in this letter, including the costs of any legal proceedings.
Mr Hardaker did not initially agree to sign the Undertaking. On 19 January 2022, he sent an email to Ms Hart which said:
This is not what was discussed this morning and you have given less than 48 hours to respond.
We will not be signing this.
Ms Hart responded by email on the same day as follows:
You shut me down when I was talking about this and said to send the letter and you'd send it to your lawyer to review. Happy to discuss further at any time if you'd like.
We do need this signed by 4:00pm Friday to prevent further action. If you need an extra day, I'm sure that'll be OK, however, we can't keep this unresolved.
The deadline was extended further by Ms Hart to Friday, 28 January 2022, but when Mr Hardaker did not comply with that deadline, Ms Hart sent him the following email on 29 January 2022:
We have not received a response from you in relation to the establishment of Freight Solutions Services (FSS). The timeline was extended at your request (to Friday, 28 January) and has now expired.
I am now inviting you to attend a meeting with Peter Drewes and myself to discuss next steps and your employment at COPE. You may bring a support person or representative to the meeting if you so choose.
It is apparent from emails in evidence that Mr Hardaker was still providing quotes for work to be undertaken by FSS during the last two weeks of January 2022.
On 31 January 2022, Mr Drewes and Ms Hart met with Mr Hardaker, during which Mr Hardaker said that he would not sign the Undertaking. Mr Drewes then handed Mr Hardaker a letter entitled "Show cause - breach of employment contract Should COPE terminate your employment?" The letter summarised the background in similar terms to the letter of 19 January 2022. After noting that Mr Hardaker had failed to provide any substantive response to that letter, it continued as follows:
2. PRELIMINARY VIEW - TERMINATION - SERIOUS & GROSS MISCONDUCT
2.1 In the absence of any substantive response to the conduct outlined above and in the 19 January Letter, COPE has formed the view that your conduct constitutes serious and gross misconduct entitling it to terminate your employment immediately and without notice.
3. SHOW CAUSE MEETING
3.1 This is a very serious matter, but before finalising our decision about your employment, we require you to attend a meeting at the Smithfield Depot on Wednesday, 2 February 2022 at 9:30am in the Boardroom to who cause (state your case) as to why COPE should not terminate your employment for a serious and gross misconduct.
3.2 You are welcome to bring with you a support person (excluding Leith Whitehurst). You should however be aware that such person's role will be restricted to supporting you during the meeting - they are not your advocate. Present at this meeting will be Nicole Hart, National People and Culture Manager and myself.
3.3 You should be aware that in the event that you fail to attend this meeting or substantively respond to the matters raised above and in the 19 January letter, we will make our decision based on the information that we have available to us.
4. SUSPENSION
4.1 Between now and this meeting, you are suspended to afford you time to prepare your response and seek advice. You are not however to perform any other work or access any of our computer systems.
4.2 During this time, you will receive your normal remuneration and remain bound by the terms of your employment contract and must not do anything that would otherwise impact your employment.
As stated in the letter, Mr Hardaker was stood down from work for 48 hours on 31 January 2022, to give him the opportunity to consider the letter and obtain legal advice if he wanted it, without the distraction of work.
On 2 February 2022, Mr Drewes and Ms Hart met with Mr Hardaker again. Mr Drewes said in his affidavit that he opened the meeting and had a conversation with Mr Hardaker to the following effect:
Drewes: Lonnie, this is your final opportunity to sign the document or COPE will be terminating your services.
Hardaker: I'll sign the document.
Drewes: Do you have a copy?
Hardaker: No, I don't.
Drewes: Nicole, can you please go and print one?
Ms Hart printed a copy of the Undertaking and Mr Hardaker signed it and gave it back to Mr Drewes. Ms Hart then said to Mr Hardaker that he would be sent a letter containing "a first and final warning" for the conduct set out in the letters of 19 January and 31 January 2022, when he returned to work on 7 February 2022, after three days of "compassionate" leave.
Mr Drewes was cross-examined on his recollection of the conversation set out at [85] above and it was put to him that he did not say "or COPE will be terminating your services". However, Mr Drewes said he was fairly confident that termination of employment was mentioned and I accept his evidence that he did say words to the effect set out at [85] above. It is consistent with the terms of the letters of 19 January and 31 January 2022 that Mr Drewes would be giving Mr Hardaker an ultimatum at the meeting of 2 February 2022 that unless the Undertaking was signed, his employment would be terminated. In my view, Mr Hardaker could not have been under any misapprehension that this was the Company's position.
After the meeting, Ms Hart sent an email to one of the senior executives of the Company's parent, with a copy to Mr Drewes, which stated:
By way of update, fortunately our employees have "seen the light" and signed Undertakings to essentially cease and desist. Litigation won't be necessary, provided our employees comply with the commitments they have provided, and we have every expectation they will comply.
On 7 February 2022, Mr Hardaker was given a letter signed by Mr Drewes entitled "First and Final Warning - Breach of Employment Contract" (7 February letter), which after a section setting out the background, stated relevantly as follows:
2.8 In the Show Cause Meeting on 2 February 2022, rather than respond in any substantive way to the alleged conduct you substantively attended, sought that we provide you with the Undertaking to sign.
2.9 We confirmed that the signing of the Undertaking did not remove from the fact that you had seriously breached your obligations to COPE and whilst you had avoided termination of your employment summarily, you would be receiving a warning.
3. DECISION
3.1 Having taken time to consider the above conduct, acknowledged by you and in the absence of any substantive response, we concluded that your deliberate behaviour in breach of your obligations to COPE is not excused by you signing the Undertaking. This is particularly in circumstances where:
(a) in partnership with Leith Whitehurst, you registered the business Freight Solution Services (ABN 32 108 822 478) (FSS) in direct breach of your obligations to COPE;
(b) by virtue of your position in that partnership, you had direct access and control over FSS's financials and were in a position to control the decisions of the business; and
(c) you refused to be honest and forthcoming about information regarding your conduct and involvement with FSS, which is in direct breach of your contractual obligations to, among other things, promptly report all information and explanations when requested by COPE (the 19 January Letter), in connection with matters relating to your employment or the business of COPE.
3.2 Whilst COPE appreciates and accepts the signed Undertaking, it does not remove from the fact that you:
(a) blatantly and deliberately breached your Employment Contract, as well as your statutory and common law obligations to COPE;
(b) have caused COPE to suffer damage and loss and exposed COPE to significant legal liability, in the event of any claims made by customer/s whom you had misled into believing that COPE were providing the services provided by your partnership, FSS;
(c) have through the past 14 day (sic) to who complete disregard for your obligations pursuant to your Employment Contract.
3.3 As such, and as advised during our meeting today, we have decided to issue you with a First and Final warning.
3.4 You should also be clearly aware that should COPE become aware of any similar conduct moving forward, it will take all necessary action to recover any losses from you without further notice to you.
4. COMPLIANCE MOVING FORWARD
4.1 You should be under no misapprehension that even despite you signing the Undertaking, that COPE has seriously considered the termination of your Employment as your conduct has seriously damaged our trust and confidence in you.
4.2 Accordingly, you must be clearly aware that moving forward we require strict compliance with all of your employment obligations and also your commitments in the Undertaking.
4.3 Any further inappropriate conduct by you in breach of your obligations will likely lead to the termination of your employment.
5. CONCLUSION
5.1 We also remind you that COPE has an Employee Assistance Program with Converge International. If you feel it would be beneficial to call upon a counselling service, this is still available to yourself or your family and they can be contacted on 1300 687 327.
5.2 If you would like to discuss or clarify anything in this letter, please contact me on 0418 223 144 or pdrewes@cope.com.au or alternatively Nicole Hart at nhart@cope.com.au or 0414 505 101.
5.3 Otherwise, subject to you fully complying with your employment obligations and the obligations in your Undertaking, we are hopeful that we will be able to move forward from this issue now and rebuild the relationship as we continue to work together.
Included in evidence are 14 invoices issued by FSS Pty Ltd during February and March 2022. Each of the companies to which those invoices were issued, except for two, were customers of the Company.
On 25 March 2022, Mr Hardaker gave notice of his resignation from the Company as mentioned earlier.
The trial judge found that there was no consideration to support the undertaking given by Mrs O'Brien because no benefit accrued to her from it. On appeal, it was held that the undertaking was binding. Meagher JA (with whom Mason P and Priestley JJ agreed) said at [10]:
On his Honour's own finding the appellant said to Mrs O'Brien 'we shall dismiss you if you do not sign', or alternatively, 'we shall not dismiss you if you do sign', I cannot see how such an agreement lacks consideration: this is a benefit to the employers in obtaining the signature, and a benefit to the employee in diverting the prospect of immanent dismissal.
When his Honour's observations are read in light of the primary judge's findings, the statement "or alternatively, 'we shall not dismiss you if you do so sign'" is to be read as treating what was actually said ("we shall dismiss you if you don't sign") as an implied promise that "we shall not dismiss you if you do sign".
In relation to the second alternative referred to in Lopatinsky, it is established that the actual forbearance by one party, A, to enforce a claim against another party, B, would be good consideration for a promise by B where B expressly or impliedly requests A to forbear from enforcing the claim: The Alliance Bank Ltd v Broom (1864) 2 DR & SM 289; 62 ER 631; Fullerton v Provincial Bank of Ireland [1903] AC 309 at 313; Wigan v Edwards (1973) 47 ALJR 586; Heydon on Contract at [5.390].
It is the express or implied request of B which makes the forbearance by A the price for the promise given by B. The making of an implied request can be inferred from the surrounding circumstances. In Fullerton, a customer of the respondent bank undertook by letter to deposit a title deed as security for his overdraft in circumstances where he was in default and was being pressed for payment. It was held that the letter was given for valuable consideration, being the forbearance to sue, and therefore constituted an equitable charge. Lord McNaughten said at 313:
The other point on which the learned Solicitor-General relied was that there was no proof of consideration. The promise, he said, if it was a definite promise, was 'nudum pactum' - not doubt, he said, Col. Stevenson had overdrawn his account, but there was no stipulation for forbearance for any definite time. …
My Lords, this point seems to me to be settled by authority. In such a case as this, it is not necessary that there should be an arrangement for forbearance for any definite or particular time. It is quite enough if you can infer from the surrounding circumstances that there was an implied request for forbearance for a time, and that forbearance for a reasonable time was in fact extended to the person who asked for it. That proposition seems to me to be established by the case of Allianz Bank v Broom …
In my opinion, the statement by Mr Drewes at [85] above constitutes an implied promise by the Company that it would not terminate Mr Hardaker's employment if he signed the Undertaking. Further, in my opinion, it is to be inferred from all the circumstances leading up to the execution of the Undertaking that Mr Hardaker impliedly requested the Company not to terminate his employment if he signed the Undertaking, and that this led to the forbearance which actually occurred. In light of the letters of 19 and 31 January 2022, Mr Hardaker could have had no doubt that if he did not sign the Undertaking his employment would have been immediately terminated. He also knew that if he signed the Undertaking and he complied with it, his employment would not be terminated. There is no evidence to suggest, nor was it contended, that he signed the Undertaking under duress.
For Mr Hardaker, a number of submissions were made in support of the contention that the Undertaking is not binding as a contract.
First, it was submitted that there is no evidence that the Company made a promise to Mr Hardaker in return for the promises made by him in the Undertaking. For the reasons given above, I consider that there was an implied promise or, alternatively, an actual forbearance by the Company to terminate Mr Hardaker's employment, either of which provides adequate consideration for the promises made by him in the Undertaking. It was submitted that paras 3.1 and 3.3 of the 7 February letter were inconsistent with any promise (or presumably, any forbearance) being made by the Company. However, in my opinion, when the 7 February letter is read as a whole, and bearing in mind that Mr Hardaker was told at the meeting that a "final warning" would be given to him after the meeting in relation to his conduct, those paragraphs of the 7 February letter do no more than warn him that breaches of the Undertaking in the future will lead to termination of his employment.
Second, it was submitted that any promise given by the Company in return for the Undertaking was illusory and not good consideration. An illusory promise is one where the promisor has a discretion whether or not to carry it out: see Heydon on Contract at [5.220]. In my opinion, that does not correctly characterise the position of the Company in the present case. Importantly, the Company did not in fact terminate Mr Hardaker's employment; the termination of his employment came about because he resigned on 25 March 2022. There is no evidence to suggest there was any conduct by the Company after the 7 February letter was provided to Mr Hardaker to indicate that it was contemplating terminating his employment after the meeting on 2 February 2022.
Third, it was submitted that if the Undertaking formed part of a contract between the Company and Mr Hardaker, the Company is not entitled to enforce the negative stipulations in the Undertaking by injunction or other equitable relief because it was in breach of its obligations under that Contract by bringing these proceedings seeking, inter alia, damages for the transactions effected through FFS. Injunctive relief seeking to enforce negative stipulations in a contract will be denied to a plaintiff who is in breach of its own obligations under that contract: Heydon on Contract, at [28.370]. However, on the view I take of the Undertaking, the Company is not in breach of its obligations. Whether the consideration given for the Undertaking is either the promise not to terminate the Contract for breach, or the actual forbearance to do so, that consideration has been provided.
In relation to customer connection, the evidence establishes that by February 2022, Mr Hardaker had developed over the seven years of his employment a personal relationship with customers of the Company which was a customer connection of the Company and a protectable interest: see [61] above.
For these reasons the restraints in cll 1, 2 and 3 of the Undertaking are not void. The next issue is whether the extension of the period of the restraint from six to 12 months is reasonable.
The reason why the Undertaking specifies a period of 12 months rather than six months for the post termination restraints in cll 1, 2 and 3 is that Mr Drewes decided that it was appropriate. He explained the reasons for doing so in his affidavit of 7 September 2022:
[53] In my email to Mr Linnett, I suggested that the restraints be increased from 6 to 12 months. I suggested this because Mr Hardaker had a unique role at COPE and one that is extremely difficult to replicate in the sensitive freight industry. From my experience at COPE, it would be difficult to externally recruit a fit for purpose replacement for Mr Hardaker given the specialised nature of his role. It would likely take at least twelve months for COPE to internally train an employee to be able to take over Mr Hardaker's previous role and build the relationships that Mr Hardaker had with COPE's customers. The development and maintenance of customer relationships can take years to build up and would take a new employee or an existing employee in training this amount of time to build similar levels of trust to that which Mr Hardaker had with COPE's customers by February 2022 through his employment with COPE.
[54] In the undertaking, the first paragraph includes a restraint that would prevent Mr Hardaker from operating the FSS partnership or any other business which provides the same or similar services as, or is in competition with COPE. I knew that the FSS partnership had traded. I wanted to ensure that COPE's interests were protected, particularly because it appeared to me that the FSS partnership had competed with COPE while Mr Hardaker remained an employee of COPE. This was another reason why I thought a 12 month non-compete was necessary. If Mr Hardaker was able to go out and compete with COPE as the FSS partnership earlier than 12 months after his employment, he would be able to take immediate advantage of his relationships with COPE's customers.
[55] The second paragraph of the undertaking prevents Mr Hardaker from, amongst other things, approaching COPE's customers. As I explain above in paragraph [53], Mr Hardaker's role at COIPE and in the sensitive freight services market generally, and particularly in the healthcare industry, was unique and there were only a small number of competitors that offered similar services. I was concerned that Mr Hardaker would approach COPE's customers, whether in a formal work context, socially, or otherwise, with a view to performing services that are the same as or similar to COPE. I was concerned that such approaches would occur before COPE had been able to put in place and train up a replacement for Mr Hardaker and before a replacement would develop relationships of trust with COPE's customers. In my view, for at least 12 months COPE would be vulnerable to Mr Hardaker's influence with COPE's customers. Someone at COPE would need time to begin forging the kinds of relationships that Mr Hardaker had forged with COPE's customers while at COPE. IF Mr Hardaker was able to approach COPE"s customers and persuade them to use another sensitive freight service provider and continue to deal with Mr Hardaker, it would make it difficult for COPE to be able to recover from Mr Hardaker's exit from COPE's business. The second paragraph of the undertaking seeks to prevent Mr Hardaker from having the benefit of that sort of advantage.
[56] In the third paragraph of the undertaking, the restraint prevents Mr Hardaker from being employed by a competitor of COPE. The reason why this restraint was and is necessary is because of the closeness of the customer relationships that Mr Hardaker had developed with COPE's customers that he serviced, and also because Mr Hardaker was intimately aware of COPE's pricing with these customers because he provided quotes to them regularly. I did not want Mr Hardaker to be able to become employed or otherwise associated with a competitor of COPE and then use COPE's customer and pricing information to the benefit of COPE's competitor and the detriment of COPE.
[57] I did not propose twelve month restraints to punish Mr Hardaker. I wanted to protect COPE's profitability and interests including its relationships with its customers.
Mr Drewes was not cross-examined on this evidence, in which he identifies four reasons for his decision to extend the restraint period from six to 12 months. The first at [53], is that it would take 12 months for the Company to internally train an employee to take over Mr Hardaker's role and build the client relationships. I accept that the Company would need a period of time in which to train another employee to perform Mr Hardaker's role, and gain the confidence of the Company's customers. However, Mr Drewes does not explain why 12 months rather than six months is necessary for that purpose. The evidence does not indicate that Mr Hardaker's role required any particular technical skill and hence it can be inferred that the period of training would be relatively short (and certainly no more than six months). The evidence also indicates regularity of customer contact and that Mr Hardaker was part of a team which had the relevant customer connection; both of these matters point against any longer period than six months being necessary to establish the relevant customer connection for the person taking over Mr Hardaker's role. Also relevant in my view, is that the sensitive freight industry does not appear to be subject to a high level of technical innovation so that the customer connection had more to do with an expectation of efficiency in performance rather than the personality or technical skill of the individual employee.
The second reason, at [54], relating to FSS does not explain why 12 months rather than six months is required.
The third reason, at [55], is essentially the same as the first, which I address above.
The fourth reason, at [56], is the same as the first except, in addition, it refers to Mr Hardaker's knowledge of confidential information regarding the Company's pricing practices with customers. I have considered carefully the evidence regarding the confidential information to which Mr Hardaker had access referred to in the evidence of Mr Britza and Mr Jones, including the matters referred to at [106]-[108] above. It is clear that the Company had contracts with two of its major healthcare customers which had terms expiring around 12 months from the date of termination of his employment (being March 2023 and June 2023 respectively). The period that the confidential information is likely to remain current and of commercial advantage is relevant to the period of the restraint, although not determinative: Cactus at [36]. However, the evidence is of a fairly high level of generality and does not give any detail regarding the nature of the pricing arrangements with customers, which makes it difficult to assess the bearing it has on the length of the restraint. It is true that Mr Hardaker can be expected to have knowledge of the pricing for particular jobs for healthcare customers because he provided quotes for jobs undertaken for them during his employment. However, none of the material in evidence suggests that the Company's pricing arrangements were particularly complex, and given the nature of the work to be done I infer that they were not. Also, in practical terms, the value of such knowledge must reduce over time given the vagaries of the human memory. Further, I note that the Company does have the benefit of a confidentiality restraint which is unlimited as to time (see [34] above).
I do not place particular significance on the fact that Mr Hardaker agreed to the period of 12 months in the Undertaking. While the fact that the employee agrees to the period of the restraint is relevant, as noted earlier, here it is outweighed by the context in which he did so (imminent dismissal if he did not) and the fact that his role with the Company remained unchanged throughout his employment.
In addition, the Company relied upon two further matters to justify the extension of the period: first, that Mr Hardaker had seven years of experience with customers building relationships at the time he signed the Undertaking; and, second, Mr Hardaker's contract of employment with PFM Corp included cascading restraints for 12 months, nine months and six months. As to the first matter, in my view, in the present case the fact that the employee has worked for seven years is not of particular assistance in determining what period is required to give the employer reasonable protection for its customer connection and confidential information. In relation to the second matter, the fact that Mr Hardaker's contract had cascading restraints does not assist with the present issue; if anything, it suggests that PFM Corp recognised the risk associated with a 12-month restraint rather than a six-month restraint.
In my view, while the evidence establishes that by 2 February 2022 Mr Hardaker had a personal relationship with customers and knowledge of confidential information, which justified protection by the restraints in cll 1, 2 and 3 in the Undertaking, it does not support the conclusion that a reasonable period for those restraints was more than six months. As noted in Infomax International, a reasonable balance needs to be struck between reasonable protection to which the former employer is entitled and the right of the former employee to practice his trade or profession. In my opinion a duration for the restraints of six months from termination provides that reasonable balance whether the matter is looked at in November 2014 or February 2022.