Fourth, it is submitted that the form of consequential relief should accommodate the evidence as to what the applicant would have done had he received the shares and options in the meantime (ie. when he was supposed to). (In providing such evidence the applicant took into account the comments by Marks J in Sasse v National Dairies Ltd (unreported; 98/2290; 21/10/99 at 23.)
123 In respect of two further claims by the applicant as to the shares and options, I find, in the first instance, that account is to be taken of the dividends on the shares the applicant was entitled to receive from November 1997 and account is to be taken of what the applicant would have done had he received the shares and options at the time he was supposed to do so.
124 The parties asked that the Court make a decision in principle on the issue and direct the parties to confer as to its implementation.
125 I accede to that request.
126 It was noted that on one view, the window of opportunity to exercise the options would close on 5 May 2001. The respondent indicated on the record that it would not take that date as an issue in proceedings. In the event that judgment was delivered after that date, the respondent would comply with the orders made and attempt to accommodate them in any way.
Payment During Notice Period
Submissions - Applicant
127 The applicant asserts that on 14 August 1998 he gave the respondent one month's notice of his intention to leave its employment but that Mr Moles instructed him that he was to leave immediately. Mr Moles denies this, asserting that it was the applicant who stated he wished to leave immediately. If the applicant's version is accepted it would ordinarily follow that he would be entitled to some form of payment in lieu of notice. Although he gave one month's notice, cl 7 of the Agreement provides that, after the conclusion of the probationary period, his employment could be terminated by either party giving two weeks' notice or the parties mutually agreeing on a shorter period. Thus, absent some order under s 106, if the applicant's version was accepted, he would ordinarily be only entitled to payment in lieu of two weeks' notice. It was the understanding of the applicant that both parties agreed that he was entitled to two week's notice if it had been Mr Moles who told him to leave immediately.
128 There was no inconsistency in Mr Harper's evidence as to when he decided to resign. What he said was he made his mind up the day of his resignation, i.e. 14 August. That is when he was asked a question, he had to put a day. He said he removed "my stuff the night before. I believe I would be walked".
129 Two weeks' notice is clearly unfair, harsh or unconscionable, given the seniority of the applicant's position, the fact that he completed a six month probationary period (being twice the usual period) during which he was liable to be terminated without notice and that he had been employed by the respondent for 14 months; see generally Ruefli v Allam Bros Australia Pty Limited [1999] NSWIRComm 471 (unreported, Glynn J, 26/10/99 at page 13.7 and cases cited thereat).
130 Clause 7 of the Agreement should be varied by substituting "one month" for "two weeks" and, by way of consequential relief, the respondent ordered to pay the applicant an amount of $19,321.00 (gross) plus interest. (Alternatively, it was submitted that the Court should order the respondent pay to the applicant an amount of $8,917.38 (i.e. two weeks salary including commission) plus interest. Those figures were taken from his tax returns as shown on his group certificate which was tendered.
Submissions - Respondent
131 On the question of the notice, the respondent's primary position was that the applicant should not be provided with payment in lieu of notice on the basis it was the applicant who decided to leave the respondent and requested it be effective immediately.
132 The issue of contention in respect of this issue is what was said during the meeting with Mr Moles and Mr Harper on 14 August 1998. The applicant tendered his resignation to Mr Moles to take effect forthwith.
133 It was never the applicant's intention to work out a notice period. Certainly the letter of resignation makes no reference to a notice period. It does not corroborate the applicant's version of events. The evidence of Mr Harper on this issue is clearly false and inconsistent with the surrounding circumstances as well as his evidence in cross-examination.
134 He went to the office on 13th August 2000 to remove his personal belongings and to clean up the bits and pieces. He removed his belongings on the belief that he was going to be walked out, and he was not. There is no evidence that would support his contention. The evidence of Mr Foster, saying Mr Harper told him he was quite willing to stay for the notice period, more than happy to stay, may be true, but at the end of the day it was he who wanted to go and he made it clear to Mr Moles in the meeting on 14 August.
135 The question relating to notice ought to be resolved in favour of the respondent. The applicant resigned on that day forthwith and proceeded to conduct himself in a way in which he would be prepared for the operation of his business.
136 The other point that was quite clear in this case as it moved to the termination, was that the respondent did not terminate the employment of the applicant. The applicant's own evidence established that he resigned and that his desire was to establish his own recruitment business because of his unhappy experience, he told the Commission, at the respondent. It is fanciful for the applicant to claim that he was entitled to a notice period.
137 If the Court determines against the respondent on this issue, the respondent in the circumstances ought only be ordered to pay the applicant the sum of two weeks notice. There is an issue about the basis upon which the Commission should calculate the remuneration of the applicant for the purpose of any notice. See for example Ross v GN Comtext (Australia) Pty Limited (2000) NSWIRComm 1. Compare this to Shead v Summit Western Pty Limited t/as Blacktown Mitsubishi (1998) 81 IR 347.
Payment in lieu of Notice - Consideration
138 The termination clause of the Agreement of 8 April 1997 made between the applicant and the respondent is in the following terms
DETERMINATION
After the probationary period this agreement may be determined by either party hereto giving to the other two weeks' notice in writing provided that after giving of such notice the parties may mutually agree to a shorter period for the determination of this agreement.
During the probationary period this agreement may be terminated in writing without notice.
139 Whether or not there should be an order for two weeks pay in lieu of notice is a matter that has considerably exercised my mind.
140 It is clear on the evidence that the applicant's departure from Candle was initiated by him.
141 The applicant did offer to work out a period of notice with the respondent, as was confirmed by Mr Foster's evidence. In my view, that offer was made in the full expectation that it would be refused and that once he had announced his intention to leave the respondent he would be immediately "walked" to the front door, as had occurred upon his resignation from Morgan & Banks. In the light of his anticipatory removal of his personal belongings on the previous evening, it was probably of some surprise to him that that did not occur, but that he was asked to attend a hand over meeting with Mr Foster later in the day.
142 In relation to the applicant's last day at Candle, Mr Foster recalled that the applicant had said to him that he was happy to work out the notice period, but Mr Foster could not recall a reference by the applicant to a period of time. Mr Foster also recalled that after the applicant left, Mr Foster had had a conversation with the applicant generally along the lines deposed to by the applicant that Mr Moles had said there would be no payment, but Mr Foster said that in that later conversation there was no reference to a month's pay as was claimed by the applicant. Mr Foster also said that Mr Moles had told him that the applicant had agreed to there being no payment. The applicant disputed such an agreement.
143 The applicant's contract of employment called for two weeks notice in writing. He unilaterally and, in my view, disingenuously, proposed one month. (On that point, he said in cross examination that because he was paid monthly, he assumed the notice period was one month.)
144 It seems that the contest as to payment really comes down to two alternatives. Was the applicant deprived of two weeks salary by being refused the opportunity to work out that period, or was his departure on the day a mutually agreed shorter period of notice in accordance with his letter of appointment?
145 Each alternative is equally feasible and indeed both conversations as relayed to the Court to the extent each was supported by the evidence of Mr Foster could stand together - the applicant resigning and offering to stay and there following some discussion in which the shorter period of notice was agreed upon. The applicant was someone who, as he said to Mr Moles in a letter dated 7 October 1998, did not believe in "burning bridges" with previous employers. That approach was also instanced in his letter of resignation dated 14 August 1997, described by him as "polite" and "a polite way of resigning", because, as he said in evidence, he did not believe positive statements he had made in it as to the respondent's commitment to people or as to support given to him by the respondent were true.
146 Mr Moles, in his version of the conversation with the applicant in which the latter resigned, made no reference to any specific agreement that the applicant would not receive any payment in lieu on leaving.
147 It was said by Mr Moles that "Luke was fairly affable when he left", advising that Mr Foster could contact him on his mobile in the event that Mr Foster needed more information in managing the applicant's division on an interim basis. Mr Foster indeed did so on a number of occasions.
148 I take into account in the determination of this issue my general assessment of the evidence given by the applicant, by Mr Moles and by Mr Foster.
149 The applicant in his answers was protective of his own interests as, for example, in the applicant's evidence relied upon by Mr Moses to impugn the applicant's credibility in relation to asserted employment of contractors to enter Morgan & Banks data into the Candle data base. The applicant had indicated one belief, but denied it a few minutes later, as to the actions of Mr Moles in relation to those contractors.
150 Answers by Mr Moles prefaced by the words "I mean" or "Look, I mean", often signalled a response that in effect accepted what the cross-examiner (most often) was putting to him but was seeking to explain away that acceptance. There was a number of such answers recorded in relation to the events of the applicant's resignation.
151 I have already indicated that I accept that no attack could be made on the credibility of Mr Foster.
152 I have come to the view that the second alternative as to the applicant's termination is to be accepted. I therefore reject the claim for payment in lieu of notice.
Restraint Clauses
153 Clause 5 of the Agreement provided that:
The employee shall devote his/her full time to the service of the Company and shall not engage in any other employment without the consent in writing of the Directors of the Company.
154 Clause 10 provided for restraints in the following terms:
10. (a) The employee shall not either during the continuance of his/her employment hereunder or thereafter without the written consent of the Directors of the Company divulge to any person whomsoever any trade secret or work process of any information concerning the business or finances of the Company or its dealings, affairs or transactions including names and addresses of clients and contract personnel.
(b) The employee hereby expressly agrees that for the period of six months from the determination of this agreement he/she shall not obtain employment with or make sales approaches to any of the Company's clients (excluding those clients who are seminar clients only) with whom he/she has worked or been in contact with in the period of six months immediately preceding the date of determination of this agreement without prior consent of the Directors of the Company in writing.
155 The Employee Non-Disclosure Agreement signed by the applicant on 14 April 1997 was in the following terms:
I LUKE HARPER an employee of Candle Australia Ltd hereby recognise that documentation and information pertaining to the business of Candle Australia that may be disclosed to me from time to time is CONFIDENTIAL INFORMATION AND A TRADE SECRET.
Unless duly authorised I agree not to disclose any CONFIDENTIAL INFORMATION to any external party to Candle Australia Ltd nor to copy, reprint, duplicate or recreate, in whole or in any part such CONFIDENTIAL INFORMATION.
This CONFIDENTIAL INFORMATION includes any contractor/applicant and client/company details ie. resumes, computer software, diskettes and print-outs, personal information or client information gained as part of your agreed position/role with Candle Australia Ltd.
I agree to be bound by this non-disclosure agreement for a period of not less than two years after termination of my employment with Candle Australia Ltd.
Restraints
Submissions - Applicant
156 The applicant seeks relief setting aside in whole, or in part, cl 10(a) of the Agreement and the Non-Disclosure Agreement (the "Non Disclosure Restraints"), cl 10(b) of the Agreement (the Non Solicitation Clause) and cl 5 of the Agreement.
157 Subparagraph (a) of s 105 as to an "unfair contract" is satisfied in relation to these restraints by either or both the respondent's conduct and/or the terms and operation of the restraints themselves. The restraints (other than cl 5 of the Agreement) are also unlawful restraints of trade and against the public interest such that subpara (b) of the definition in s 105 is also satisfied.
158 The restraints operate for periods of six months, two years or indefinitely after the termination of the applicant's employment.
159 The respondent's conduct in:
(A) deliberately and flagrantly failing to give effect to the representation as to the applicant's entitlement to receive shares and options;
(B) frustrating the applicant's attempts to develop the sales and marketing division of the respondent by refusing to direct referrals from the technical recruiting area;
(C) relying on the restraints to make serious and false allegations concerning the applicant's conduct; and/or
(D) failing to allow the applicant to serve his notice period or to provide payment in lieu of notice,
is such that the conduct of the respondent renders the restraints and the use to which they are being put unfair with the result that they should be declared void ab initio (see Clayton v Riteway Express Pty Limited ( Clayton ) (1988) 26 IR 191).
160 It is now established that conduct alone is sufficient to establish the statutory criteria of unfairness: Reich (2000) 99 IR 69. Each aspect of the conduct identified above either occurred during the term of the applicant's employment by the respondent, or at the very least, during the term of the applicant's employment contract with the respondent.
161 As a matter of principle, the respondent should not be entitled to deliberately and contemptuously refuse to honour its obligations to the applicant yet insist on the upholding of the restraints.
162 There is no basis for saying that, because a similar subject matter can be dealt with, or is being dealt with, by the Supreme Court, s 106 should be just written out and never exercised in this context. To deny the applicant the opportunity to argue his case under s 106 because another forum is dealing with similar issues but not the same issues would not be a correct exercise of the discretion conferred by the section. The power is there to be exercised.
163 There is nothing the respondent has not had the opportunity to do to prove that there has been breach or otherwise of restraints in this case. The Restraints of Trade Act s 4(1) modifies the common law position, which was if the restraint is too wide, it is all out. Section 4 (1) says that the restraint is valid to the extent that it is not against public policy. Applying Orton v Melman (Orton) ([1981] 1 NSWLR 583 at 587), as sought by the respondent, is difficult in this case because the respondent is being coy about what the breaches are. It is hard for the Court to apply what McLelland J in Orton said to the circumstances of this case because it really was not until the last stages of the case that the applicant was able to get from Mr Moles what the breaches were. That fact is no barrier to considering either how s 106 applies to the restraints or the Restraints of Trade Act. If the Court found the restraints to be too wide, it would be as consistent with s 4(1) of the Restraints of Trade Act as with ss 105 and 106 of the 1996 Act to read the restraints down.
164 The respondent's request that the Court wash its hands of the applicant's complaints about the restraints should not be acceded to. Section 106 clearly gives the Commission jurisdiction. The Commission can act within its jurisdiction and make the findings about unfair conduct, then make findings about aspects of contracts. What consequence that leaves for the parties in other forums, the cards fall where they may in that regard. In response to the respondent's submissions, the applicant makes this clear, that it does not submit that the Court should make any findings as to whether proceedings in the Supreme Court are an abuse of process or not.
165 In effect, the respondent relied upon spurious allegations of breaches of the restraints as a counter claim to the applicant's demands for his shares, options and payment in lieu of notice. On 26 October 1998 the applicant's solicitors wrote to the respondent seeking the transfer of the shares and the options and payment of a sum in lieu of notice. On 3 November 1998 the respondent's solicitors responded. The letter denied the applicant's entitlement to shares and options and concluded by asserting that "it is clear that Mr Harper has stolen Candle's client database and candidate database".
166 There was little or no evidentiary foundation for the making of the serious allegation against the applicant that he had stolen the client database. It rested upon a comparison of two address formulations which revealed, even on a cursory glance, that there was an obvious discrepancy between the two. There were no other address formulations which were said to be similar or identical out of a database of at least 5,000 clients. No reasonable person would have accused the applicant of theft in those circumstances.
167 It was unreasonable for the respondent to maintain its allegation of theft against the applicant as Mr Moles continued to do in the witness box. This is particularly so when it was never put to the applicant in cross examination that he had stolen any of the databases.
168 As to the respondent's submission that employers are not required to have the skills of police investigators or lawyers, Candle did have lawyers. The letter of 3 November had gone through lawyers before it was sent.
169 The accusation does not necessarily have to be knowingly false but "false" meaning if made without proper evidentiary support. So a person can genuinely believe something, but if any reasonable person could not draw that conclusion, that would be a different thing. That was still unfair conduct.
170 Accordingly, it is submitted that the allegations made in the letter of 3 November 1998, and the subsequent statement of claim, were made with either no or little evidentiary support and were made with disregard as to whether they were true or not. This clearly constitutes unfair conduct within the meaning of section 106: see Geoffrey Bowker v Prophecy Technologies Pty Ltd [1999] NSWIRComm 248 (unreported, Marks J, 26 May 1999 at pp 21.10 - 22.1). It is irrelevant as to that point whether Mr Moles subjectively believed in the stealing allegation.
The Individual Restraints - Submissions - Applicant
171 The applicant attacks each of the restraints (other than clause 5 of the agreement) on the basis that they are both "unfair, harsh or unconscionable" and an unlawful restraint of trade and therefore contrary to the public interest. The authorities suggest that the appropriate approach in such a case is to first consider whether the restraints constitute an unlawful restraint of trade before considering the wider test as to whether they are otherwise harsh, unfair or unconscionable (see Daley and Ors v New South Wales Rugby League Limited & Ors (1995) 78 IR 247, 280 and 287 Hungerford J; Carter v New South Wales Rugby League Limited & Ors (1997) 78 IR 368, 400 Hill J).
172 The non disclosure provisions set out in cl 10(a) and the Non-Disclosure Agreement are clearly in restraint of trade, prima facie void and incapable of being justified. No restriction is placed upon their geographical operation (i.e. it is worldwide). The time imposed by cl 10(a) is also unlimited and the time imposed by the non disclosure agreement is for a period of "not less than two years". Such provisions are clearly too wide: Wright v Gasweld (1991) 22 NSWLR 317, 327 G (per Gleeson CJ) and 332 D (per Kirby P). Moreover, the scope of the obligation imposed by the restraints extends far beyond material that could possibly be considered to be confidential for instance cl 10(a) purports to impose an obligation to not disclose "any … work process of [sic] any information concerning the … dealings, affairs or transactions" of the respondent.
173 The phrases are so wide and vague that they could be construed as applying to every piece of information the applicant received while employed by the respondent. Both these clauses appear to impinge upon the applicant's ability to undertake work or deal with persons who are or at any stage have been "clients" or "candidates" of the respondent. If as a result of those clauses the applicant cannot divulge names and addresses of clients or contract personnel, including ones that he has retained in his memory, then it would make it almost impossible for him to deal with those persons at any time subsequent to his employment. This is particularly the case where the respondent already has the benefit of a non-solicitation clause in respect of a particular class of clients only (ie. those he dealt with in the last 6 months of his employment) and which only operates for a period of six months.
174 The material the respondent tried to prevent Mr Harper disclosing is material that is publicly available and is so wide that it would shut him down. The allegedly confidential information comprises letterheads, slogans and candidate descriptions. These are all publicly disseminated. They cannot reasonably be regarded as being confidential and as such cannot be the subject of any such restraint (Wright v Gasweld supra at 333G per Kirby P and 339F per Samuels J).
175 There is an inherent unfairness in having two different agreements which address the same topic, namely non-disclosure of allegedly confidential information, but impose different obligations. Clause 10(a) of the agreement is unlimited in time whereas the non disclosure agreement only operates for a period of "up to two years".
176 There is significant potential for ambiguity with the phrase "sales approaches" in cl 10(b). It would constitute an unfair restriction upon the rights of those clients to use the recruitment consultant of their choice. (There is, of course, no exclusivity arrangement between the respondent and any of those clients.)
177 The clause also operates to prevent the applicant approaching "clients" whom he had "been in contact" within the period of six months immediately preceding the date of the termination of the agreement. This is far too wide and is otherwise unfair, harsh and unconscionable. The "contact" is not limited to contact via the respondent. It does not exclude contact in some personal or other capacity. Further, the applicant merely could have taken a message or had some brief contact with the relevant "client" and not engaged in any particular transaction with them.
178 The clause refers to clients the applicant worked with in the six months "immediately preceding the date of termination of this agreement". The clause can only operate sensibly if this is taken to be a reference to the six months preceding the termination of his employment not the agreement.
179 In relation to the respondent's submissions as to "clean hands", the applicant denied that there is undisputed evidence as to breach of post employment restraints. What Mr Harper did was, as he said in his evidence, that there were these three clients, they approached him, not he approached them, and he said he was careful with these people. Of course the restriction is on making sales approaches to the clients.
180 It is for the respondent to prove that the applicant made the sales approaches. On his evidence he did not make sales approaches. In the circumstances where clients approach Mr Harper for work there was no breach of his restraint clause, but even if there was, that would be unfair.
181 If the respondent says there was a breach of fiduciary duty it has its options. It does not have to rely on a restraint clause if it is a breach of a duty owed or implicit in the contract of employment itself.
182 Even if the Commission does not set aside the non-solicitation clause in whole, it is submitted that it should be varied:
(i) by specifying the geographical area in which it operates;
(ii) by clarifying that the phrase "sales approach" does not operate in the manner contended by the respondent as outlined in paragraph 3.37 above;
(iii) by deleting the words "or been in contact"; and
(iv) by substituting the words "his employment" for "this agreement".
183 In the Statement of Claim it is simply said because Mr Harper reused the descriptions he contravened cl 5. That is preposterous. The applicant has sought a variation to make it clear the clause does not work that way.
Submissions - Respondent
184 The post-employment restraints are lawful and ought not to be read down. The restraints are essentially less prescriptive than the constraints which Mr Harper has imposed upon his current employees and would seek to enforce.
185 The applicant only sought to have the restraints varied after the Supreme Court action by the respondent was commenced and the matters relating to the restraints are established on the evidence, that is, that there are arguable grounds that exist that Mr Harper did breach restraints contained in his contract of employment. The Commission need not be troubled with making findings as to whether or not there have been breaches of those post-employment restraints. That is a matter to be dealt with by the Supreme Court of New South Wales in due course and the respondent submits that the applicant has failed to make out a case as to why the Commission should intervene. The respondent ought not be denied its right to have the legitimacy of those restraints determined and seek to enforce the restraints which were the subject of an agreement with the applicant.
186 Moreover, the jurisdiction exercised by the Commission is discretionary. The equitable concept of "clean hands" is relevant to the exercise of that discretion. The respondent submits that the conduct of the applicant at the time of and post-termination of his employment deprives the applicant of any claim to "clean hands" and any claim to the benefit of the Commission's discretion. On that question not only does it show a breach of post employment restraints to be found in Mr Harper's contract, it is also clearly a breach of fiduciary duty to his employer.
187 As to the Restraints of Trade Act at the very least there are arguable grounds that Mr Harper breached the restraints in relation to three clients of the respondent, for example, in the case of Sirius Technologies and Mr Cooper. It is clear that Sirius Technologies was a client of Candle to whom Luke Harper had made sales in the six months prior to his resignation. Sirius Technologies was caught by the relevant restraint. On 11 August 1998 Mr Harper forwarded to Sirius a resume of Ian Cooper, a candidate of Candle's on 13 August 1998, one day prior to Mr Harper's resignation. On 16 September 1998 Mr Harper involved Sirius Technologies' replacement of Mr Cooper on behalf of his own business, Harper Executive IT. Mr Harper deposited that cheque into his own business account.
188 Finally on the question of restraint, what is sought by the applicant is a complete and unfettered right to undertake any post employment activity against the respondents unencumbered by post employment restraint, and that is the effect of the orders sought by the applicant in these proceedings. If the Court is against the respondent on the question of restraints, then the Court at the very least ought apply the approach of McLelland J in Orton v Melman ([1981] 1 NSWLR 583 at 587) to read down the restraint to what is said to be a reasonable level. However, the respondent contends that there is no warrant for the restraint to be read down in any way.
189 The Commission of course has jurisdiction to deal with the matter notwithstanding the fact that there is a Supreme Court action on foot which the respondent has commenced. However, the Commission may in its discretion refuse to intervene in the matter (see Peterson J in Elkins v Full Bloom Pty Limited [2000] NSWIRComm 223).
190 The Commission (Hill J) in what is the decision in this area, Carter v NSW Rugby League Limited & Anor [(1979) 78 IR 368 in paragraph 84 at page 368], formulates the test when dealing with such a question under s 106, that being a two step process.
191 It is necessary when determining whether a restraint is valid pursuant to s 4(1) of the Restraints of Trade Act for the Court to make a finding whether a breach infringes a post employment restraint. The Commission is not in a position to do so in this case as the respondent does not seek relief pursuant to s 106 concerning the applicant's breaches. Further, the respondent could not have brought such a claim: see for example Howitt v Retec (No 2) (1995) 60 IR 93 and National Parks & Wildlife Service v Stables Perisher Pty Ltd (1990) 20 NSWLR 573. The respondent's position has always been that the right of the respondent to enforce the restraints is a matter which ought be dealt with in the Supreme Court proceedings.
192 The applicant wishes the Court to find, as to some mala fides in respect of the reliance upon the restraints, that in effect the respondent knew that there had been no breaches of restraints and all the while it sought to put some sort of pressure, at least, on the applicant including instituting proceedings in the Supreme Court.
193 The respondent has not approached this case in a way to positively prove the breaches, but rather to point out that the respondent has an arguable case concerning those breaches and that they are to be dealt with at another time and at another place.
194 In relation to restraints, the applicant's sole focus in this case on the restraint period has been to attempt to muddy the water by focussing on the investigative process undertaken by the respondent concerning these issues rather than the conduct of the applicant.
195 The course of action taken by the respondent at the very least demonstrates arguably that there was consideration by the company before the lodging of the Supreme Court proceedings and before the making of what is conceded to be a serious allegation. The path of investigation in relation to matters of principle is that an employer such as Mr Moles is not expected to be a police officer or investigator when dealing with such matters (see Mason v Electricity Commission of New South Wales trading as Pacific Power [(1995) 62 IR 436]).
196 There has been no conduct by the respondent that has been done in bad faith concerning its reliance upon the restraints.
197 The action against Mr Harper for the breach of cl 10B is consistent with Candle's treatment of other employees. There has been no testimony of action by the respondent to unfairly single out Mr Harper simply because of any issue concerning his claim for shares or options or that he has gone out in alleged competition against the respondent.
198 If one looks at the Reich decision, the making of an allegation in itself, if it be false and deliberately made and knowingly to be false, may constitute unfair conduct for the purposes of a contract. It would have to have two elements, it would have to be both false and deliberately made, knowing it to be false.
199 There are reasonable grounds that demonstrate Mr Harper understood the terms of the restraint of trade and by signing his contracts with the respondents agreed to those terms. The employment contract between Mr Harper and Candle dated 8 April 1997 and the employee's non disclosure agreement signed by him on 14 April 1997 are identical to those relied upon by Mr Harper to instruct Mr Langan to write to Candle's solicitors to have agreements enforced upon a former employee of Candle. He has more onerous restraints against his own employees in relation to post employment conduct.
200 The restraints in the Candle contracts are very similar to the restraints in the confidentiality agreement that Mr Harper was formerly employed under at Morgan & Banks. Mr Harper had been reminded of his obligations under those restraints because Morgan & Banks had been concerned about confidentiality breaches by him of them.
201 If the Court were to accept the submissions of the applicant as set out in the Further Re-amended Summons, that would have the effect of preventing the respondent proceeding in the Supreme Court of New South Wales, because if the Court were, in effect, to avoid the restraints there would be nothing in respect of the employment contract components of the statement of claim in the Supreme Court that would underpin the action.
202 The Court would simply decline to entertain these matters and find there were no grounds to intervene.
Restraints - Consideration
Approach to Restraints
203 Mr Moses submitted that the proper approach for the Court to adopt as to the issue of restraints was that enunciated by McLelland J in Orton v Melman ([1981] 1 NSWLR 583 at 587):
In my opinion where the court is to determine, in relation to a restraint to which s 4(1) applies whether (having regard to public policy) the restraint is enforceable in respect of an alleged breach (or threatened breach), it is proper first to determine whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed, and if so, then to determine whether the restraint, so far as it applies to that breach, is contrary to public policy. If the restraint, so far as it applies to that breach, is not contrary to public policy then by force of s 4(1) the restraint is to that extent valid, subject always of course to any order which may be made under s 4(3).
204 Section 4(1) of the Restraints of Trade Act 1976 provides:
A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.
205 "Public policy" is defined in s 1 of the Restraints of Trade Act to mean "public policy in respect of restraint of trade". That definition, it seems to me, is much more limited in its effect than the ability of the Commission to consider "public interest", in the terms of s 105.
206 There is a significant body of case law as to the outcome of decisions of the Supreme Court in relation to s 4 and to s 4(1) in particular.
207 In Wright v Gasweld Pty Ltd [(1991) 22 NSWLR 317 at 330], Kirby P (as he then was) noted that by the Restraints of Trade Act 1976 (Restraints Act), Parliament had made provision to permit the Supreme Court, by order, to save from avoidance on grounds of public policy the validity of certain restraints of trade.
208 Section 4(1) of the Restraints of Trade Act 1976 does not allow the Court to remake the contract or a covenant in it (Kone Elevators Pty Limited v McNay (1997) ATPR Rpt 41-564). The Court cannot make an order to have effect earlier than the date on which the order is made (s 4(3) ).
209 I do not accept that the proper approach to adopt to the issue of restraints being considered in these proceedings is that set out by Mc Lelland J in Orton.
210 As can be seen from the extremely cursory details set out above, the provision made under the Restraints Act is a very specific and limited one, quite different from the more expansive, though not at large, jurisdiction given to the Commission in Court Session pursuant to Part 9, Division 2 of Chapter 2 of the Industrial Relations Act 1996. In relation to a contract whereby a person performs work in any industry, that the Commission finds is an unfair contract in terms of s 105, (including that it is against the public interest (s 105(b) ), the Commission may make an order declaring wholly or partly void, or varying, any such contract (s 106(1) ). The Commission may find it was unfair at the time it was entered into or subsequently (s 106(2) ). The Commission may declare a contract wholly or partly void, or varied, either from the commencement of the contract or from some other time (s 106(3) ). (The remainder of s 106, including s 106(4) as to public interest, is set out elsewhere in this decision.)
211 The power of the Commission to vary a contract under s 106 arises only after the Commission has found the contract in question unfair. It is not uncommon for questions as to whether certain restraints are unfair in terms of s 105(a) or against the public interest in terms of s 105(b) to arise for consideration in applications made under s 105 and s 106 in the 1996 Act, a situation that occurred also under the predecessor sections in the Industrial Relations Act 1991 and the Industrial Arbitration Act 1940.
212 In Carter v New South Wales Rugby League Limited (Carter) (one of seven applications dealt with in those proceedings) [(1997) 78 IR 368 at 400] Hill J first found that the agreement was a prima facie restraint of trade and then stated that "the next question is whether the restraint is justified as being reasonable for the protection of the Leagues' business enterprise".
213 In Carter, the primary point at issue was whether, in proceedings seeking orders that certain "loyalty" agreements (restraints) were unfair and contrary to the public interest as being in restraint of trade, those agreements should be declared void as being unfair contracts in terms of s 105 and s 106 of the 1996 Act.
214 The findings that Hill J made in Carter were that provisions in the various contracts being examined were either fair or unfair. He said, for instance, that the unreasonableness of the options provisions arose mainly out of what he described as unconscionably long period/s of the option restraints (at 412). Unfairness in some cases could be cured by deletion, in others the agreement, having been found to be substantially unfair, was avoided.
215 Later at p 414, Hill J noted that no reference was made to the Restraints of Trade Act in the proceedings before him. His reference to s 4(1), after considering the decision by Windeyer J in ARL v Cross and Elsegood [(1997) 39 IPR 111], was in relation to the severability aspects of s 4(1).
216 In Daley v New South Wales Rugby League Limited (and applications by four other footballers) [(1995) 78 IR 247], Hungerford J, having satisfied himself that the alleged arrangements (exclusion from representative selection) were within the scope of s 275 of the Industrial Relations Act 1991 (the predecessor of the present ss 105 and 106), attended to whether the applicants had satisfied the grounds for relief contained in s 275. He first dealt with the public interest ground as to restraint of trade. His Honour adopted a number of propositions distilled from other cases as to that issue, but I refer, for the purposes of this decision, to one only (at p 281):
(e) If a restraint of trade is shown it is a question of law whether the circumstances justify the restraint.
217 Having found that the exclusion imposed on the applicants by the respondents was a restraint of trade, Hungerford J then said (at 283) that the question then to be asked is whether the restraint so found is reasonable or unreasonable. His Honour found (at 287) that the ban imposed on the players was an unreasonable restraint of trade against the public interest (ie. the equivalent sub-section to s 105(b) ). Although that finding made it strictly unnecessary for him to consider the ground of unfairness as relied upon and fully argued by the applicants, he did so for completeness and concluded that the ground of unfairness had also been made out.
218 Although Hungerford J discussed the restraint of trade at common law, he did not refer to the Restraints of Trade Act 1976.
219 My consideration of Carter and of Daley is both in relation to the methodology adopted in this jurisdiction as to the consideration of restraint of trade issues in the context of applications made under s 275 (or its predecessor) and to principle.
220 In relation to other authorities relied upon, the restraints in Clayton were not upon examination avoided by Macken J because benefits under the impugned contract had been withheld from the applicant, though he held that because of that the contract was unfair, but because they were too wide both with respect to their temporal (2 years) as well as their geographic application.
221 In JRM Insurance Services Pty Ltd and John Robert Mattock v Greater West Insurance Brokers Pty Ltd & Gregory McDonald (unreported; Kavanagh J; 97/5389 and 5390; 17/11/99) Kavanagh J found that there was a manifest unfairness in the conduct by the respondents in the performance of the relevant employment contracts. That conduct included failure to pay bonus earned and the series of personal indignities suffered by each applicant in the termination of his employment contract, including unsubstantiated allegations of dishonesty. In finding the respondent's conduct in total not only unfair but also harsh or unconscionable, Kavanagh J also said that that conduct defied accepted standards of business morality as defined in Stowar v Myer Stores Limited (T/as Grace Bros) [(1993) 50 IR 9 at 37]. That is not this case.
222 The applicant claimed that the respondent frustrated the applicant's attempts to develop the respondent's sales and marketing division. How that would justify the setting aside of the restraints was not really developed. The respondent tendered evidence of the commission ($156,920) earned by the applicant in the period July 1997 to July 1998. The graphic representation of that period was one of peaks and troughs, monthly amounts ranging from $2,280 (June 1998) to $28,888 (October 1997). There was, however, no evidence as to the extent, if any, that the non-referral of leads from the technical area played in relation to any decline.
223 If it did have the consequence of his receiving a smaller amount in commissions than otherwise might have been the case, he had his remedy. He could, and did, resign from Candle.
224 I do not see that the alleged refusal to direct referrals from the technical recruiting area to the applicant's sales and marketing division falls, in this case, into the category of unfair conduct on the respondent's part.
225 It certainly was not shown that any such conduct was such as to make it unfair that the applicant should be hindered by the restraints from pursuing whatever means he wished in order to make a proper livelihood in order to balance actions of the respondent preventing him from achieving a proper income while employed by the respondent.
226 The restraint provisions being considered in these proceedings are not the central issue as to whether or not the contract of employment offends s 105 as is contended by the applicant. That central issue is focussed on the applicant's claim that, having successfully completed a six months period of probation, he is entitled, without further ado, to a number of shares and options, and that entitlement not having been honoured by the respondent, the respondent's conduct evidences an unfair contract (see Reich).
227 Deficiencies in the restraints were not originally advanced in the applicant's summons for relief as grounds for relief. The claim by the applicant that the restraints are unfair in terms of s 105 is one that was first raised in October 1999, after the respondent in April 1999 had instituted proceedings in the Supreme Court on the basis that the applicant had breached the restraint clauses and sought repayment of monies from Harper IT Executive Pty Ltd (not a party to the s 106 proceedings).
228 The applicant's attack on the restraints was put on two main bases - firstly, the restraints in themselves were unlawful and, secondly, the conduct of the respondent rendered the restraints unfair. The primary attack was directed to the conduct of the respondent.
229 It was claimed by the applicant that the respondent relied upon the restraints to make serious and false allegations concerning the applicant's conduct. Those allegations go to claimed breaches of confidentiality and to approaches to the respondent's clients/candidates by the applicant after he left the respondent.
230 The respondent quite properly accepted that those allegations were serious.
231 Evidence before the Court going to the soliciting candidate/client issue suggested that there was sufficient information available to justify the respondent's concern. If those serious allegations are found after proper investigation in the Supreme Court to be false, then undoubtedly appropriate relief will flow to the applicant.
232 I find it difficult to accept that post employment inquiries the respondent initiated to try to ascertain whether or not the applicant had breached the restraint clauses, the subsequent discussions within the company and the letter of the respondent's solicitors making specific allegations would be regarded as conduct that would result in orders by this Court to avoid the restraint clauses.
233 I do not consider that the decision of Marks J in Geoffrey Bowker v Prophecy Technologies Pty Ltd [1999] NSWIRComm 248 (unreported; 99/291; 26/5/99) assists the applicant as to its allegations that the conduct of the respondent in its investigation of alleged breaches of restraint clauses and the later solicitor's letter. The internal and external investigation in this case did not appear to go beyond proper bounds and any accusations were made between the parties, not published generally on a web site.
234 I also have difficulty in finding that the making of serious and allegedly false allegations against the applicant's conduct, such allegations being based on the restraints, would of itself constitute unfair conduct. It would be more likely to be found unfair if they were not so based.
235 I have found that the applicant resigned and agreed to a shorter period of notice. There was therefore no unfair conduct on the part of the respondent as to that issue to be considered in relation to the restraints.
236 I have found that the conduct of the respondent in relation to the shares/options was such as to evidence an unfair contract. I do not, however, see how that unfair conduct has the further effect in itself, of making the restraints unfair. On the evidence, the non-provision of the shares/options would not have had any substantial effect on the applicant's financial position for some time. In other words, that non-provision did not leave the applicant in such a parlous financial state that it would be unfair to fetter his immediate ability to earn moneys.
237 It would seem that the respondent's witnesses did not have any real understanding as to the operation of the client and candidate data bases. On the evidence before me I am not of the view that the accusations against the application were made in bad faith. The reasonableness of those beliefs may, however, be a matter to be taken into account as to whether the conduct was such as to make an otherwise fair contract unfair. Whether the matter of alleged breaches of restraint clauses after employment is terminated should be considered in relation to an application made pursuant to s 106, would depend upon the circumstances brought forward in each case. The issue as to whether those restraint clauses, in the first place, are such as to render the contract an "unfair contract" in terms of s 105 certainly needs to be considered, and, if necessary, any necessary variation made.
Specific Restraints - Consideration - Clause 10
238 The statement by Lindley MR in Haynes v Doman (Haynes) ([1899] 2 Ch 13 at 25), referred to by Hill J in Carter (at 407) is an apposite today as it was more than one hundred years ago:
Agreements in restraint of trade, like other agreements, must be construed with the reference to the object sought to be attained by them.
239 The "object" in Haynes was the same as that in the present proceedings:
In cases such as the one before us, the object is the protection of one of the parties against rivalry in trade.
240 I do not see that either the requirement for cl 10 of the employment agreement or the employee non-disclosure agreement is unfair in principle as being necessary to safeguard the respondent's personnel recruitment business, which is peculiarly bound up with having the ability to bring together individuals - employers seeking people with specialised IT skills and employees possessing those skills.
241 To do so requires contact with possible clients (ie. seekers of personnel) and possible candidates (seekers of jobs), and the successful matching, for a fee, of one with the other. That contact with clients/candidates by the recruitment agency can be direct or indirect, the initial contact either being one made personally, at the instance of either the recruiter, the client or the candidate, or in response, for instance, to advertisements or circulars to more directly targeted contacts. The information obtained is stored and is a large part of the recruitment agency's stock in trade. Not all such information is however, exclusive to the agency. In searching for positions, candidates often provide a number of agencies with their CVs.
242 Furthermore, the evidence, to the extent presented in this case, suggests that such knowledge could have a limited shelf life, in that there seems to be a fair amount of turnover of positions in the IT industry.
243 However, upon examination I find that some of the terms of cl 10 and of the non-disclosure agreement make the contract of employment an unfair contract in terms of s 105.
244 Clause 10(a) provides that the employee shall not divulge certain information (and I assume a typographical error in the phrase "work process of [sic] any information") either during the continuance of his/her employment or thereafter, ie. without limitation as to a post-employment period. That last fact, without more, would make this contract prima facie unfair etc in terms of s 105(a) of the 1996 Act and against the public interest in terms of s 105 (b) of the 1996 Act as well as being against the public policy in terms of s 4(1) of the Restraints of Trade Act 1976, not that I think I need to consider the latter in these proceedings.
245 The Court orders that cl 10(a) of the Agreement between Candle Australia Ltd and Luke Harper dated 8 April 1997 shall be varied ab initio by the substitution of the words "for a period of six months" for the word "thereafter" in that sub-clause.
246 The limitation period of six months post employment imposed by cl 10(b) on the applicant as to employment with, or approaches to, respondent's clients (with nominated exceptions) with whom he had been in contact in the six months preceding the determination of his [employment] agreement is the same as that imposed by Harper IT Executive on its own employees and also the same as that imposed on the applicant by Morgan & Banks. There was, however, a substantial difference, to the benefit of the applicant, in the limitation to six months of client contact prior to termination. In the case of both Harper IT Executive and Morgan & Banks that period of limitation is twelve months.
247 I have considered some limitation on the restraint in cl 10(b) as to clients with whom the applicant has "been in contact with". It seems to me that this is an industry where the line between social and business contacts would become very blurred. The only variation on the limitation that I would impose would be to add the words, "other than in a purely personal capacity", after the words "been in contact with". Any dispute as to whether the contact was or was not "purely personal", would have to be resolved on the evidence in any particular case.
248 Furthermore, as a matter of clarification, the Court orders that the words "termination of employment" is substituted for the words "determination of this agreement" in cl 10(b). In their alternative submissions, both parties accepted that some such clarification was required.
249 I do not accept the applicant's submission that even if the Court does not set aside the non-solicitation clause (cl 10(b) ) in whole it should be varied by clarifying that the phrase "sales approach" does not operate in the manner contended for by the respondent ie. the sending of flyers to a potential employer or the approach by a candidate to the applicant and not vice versa. That issue is certainly not as straight forward as the applicant's submission might suggest. The matter of post employment restraints was reviewed by the New South Wales Court of Appeal in Barrett & Ors v Ecco Personnel Pty Limited (Barrett) ([1998] NSWSC 545; 24 November 1998). In Barrett (at p 3) Stein J, with whom Sheller JA and Fitzgerald AJA agreed, in relation to the construction of the term "solicit" in the agreement there being considered, acknowledged that in most instances the first approach will be made by the ex-employee to the former customer but went on to say that "common sense however demands that this not be the exclusive means by which a solicitation may occur. … Like Bryson J in Ridgeway International Ltd v McCullum (unreported, Equity Division, 9 April 1998) I cannot see that to propose to do business ceases to be soliciting business simply because the recipient invited the proposal".
250 In relation to the restraint period of "not less than two years" in the non-disclosure agreement, I find a source of unfairness in the lack of specificity of that non-disclosure period as being "for a period of not less than two years" (my emphasis). If it was intended to be for a period of two years it should say so. If not, it leaves the applicant subject to an open ended restraint, at risk of action alleging breach of it for the remainder of his life, not just his working life. That fact alone, on the evidence in this case, makes the restraint to be against the public interest in terms of s 105(b), and the contract of employment unfair in terms of s 105.
251 There is no evidence before the Court which would suggest that there should be different periods of restraints as to the various matters covered by cl 10 and by the non-disclosure agreement. The Court orders that the employee non-disclosure agreement, as a term of the applicant's contract of employment, be varied ab initio by the substitution of the words "six months" for the words "not less than two years" as presently appear there.
252 The complaint of the applicant as to the non-disclosure agreement appears to me to relate not so much to the requirement as to non-disclosure of confidential information, but to the respondent's designation as to what information, eg. logos, is confidential. For the purpose of determining this application it is sufficient that the Court has found that the contract between the applicant and the respondent is an unfair contract within the terms of s 105. It is not necessary in the circumstances of this particular case, to go beyond that finding to make further findings as to whether or not there have been post-employment breaches of restraint terms now varied.
253 Those differences can be completely considered within the Supreme Court proceedings. I note that Harper IT Executive is not a party to this application under s 105 and s 106.
254 In Elkins v Full Bloom Pty Ltd [2000] NSWIRComm 223 (unreported; Peterson J; 99/1842; 3/11/00), Peterson J declined to make any orders as to payment of a royalty in relation to designs as sought in the application. He said that:
These proceedings have dealt with this issue of copyright, intellectual property, damages or account of profits or any other form of remedy only in the most cursory way. There has been virtually no attention to the relevant provisions of the Copyright Act dealing with the remedies for infringements of copyright …
Section 131A provides that the jurisdiction of the Supreme Court of a State or Territory in an action under this Part shall be exercised by a single Judge of the Court. Prima facie, I would consider that the jurisdiction of this Court under s 106 would not extend to a remedy of the kind with which the Copyright Act is concerned. The claim for prohibition on use or the payment of a royalty in relation to the relevant designs in this case seems to me to fall squarely within its compass.
Decision in Principle
255 Adopting the course of action proposed by the parties, the making of a decision in principle overcomes such difficulties raised by them as to any consequential relief that involved an order that involved the transfer of shares and taking account of the vagaries of the share market.
256 The conclusions the Court has reached which will, after discussions between the parties as to the specifics of their implementation, be embodied in orders, are as follows:
1. In accordance with his letter of appointment the applicant was entitled to receive 20,000 options and 30,000 shares on 5 November 1997, those options/shares to be exercisable/sold in accordance with the timetable there set out, unless modified by this decision;