Restraint of trade clauses are usually very difficult to enforce. Photo / Getty Images
Restraint of trade clauses are usually very difficult to enforce. Photo / Getty Images
OPINION:
When news first came out that TV3 (Discovery NZ) was trying to enforce Tova O'Brien's three-month restraint of trade clause, many HR professionals thought 'good luck with that'.
Restraints of trade are notoriously hard to enforce; New Zealand employment law is very protective of a person's right to earna living. Usually, restraints of trade are only enforced where there are special commercial or public interest reasons to do so which go beyond the standard frustrations of having one of your team go to work for a competitor.
Those of us in the HR world who scoffed are now wiping the egg off our faces, as the Employment Relations Authority (ERA) decided to uphold the clause and ordered O'Brien to not only abide by the clause, but to pay her ex-employer $2,000 for breaching the terms of her agreement. Many media outlets were quick to brand this as a 'significant' or 'worrying' precedent.
Although surprised by the outcome, now the finer detail of the ruling from the ERA can be reviewed it is an opportunity to unpack the decision and understand what the consequences are likely to be for other employees.
Let's dive into the details.
First off, a nerdy point of clarification. Restraint of trade, non-competition and non-solicitation clauses are often used interchangeably in employment agreements, but they are meaningfully different and have varying implications.
A non-solicitation clause restricts an employee from encouraging or incentivising other staff or customers to leave the current employer and join them at their new job. Non-solicitation clauses are generally enforceable, as they do not impede the employee's right to earn a living and fairly protect relationships that the current employer has established.
On the other hand, a restraint of trade clause restricts an employee from working for or setting up a business as a direct competitor to their (current) employer. From previous decisions made by the judiciary, these clauses must be for a set period of time, for a set distance or area around the current employer and must be reasonable to protect the employer's interests.
An employee's right to earn a living and not be restricted from undertaking work in their chosen profession is the key concept that underpins why non-competition or restraints of trade are generally unenforceable.
As demonstrated by the Tova O'Brien case, "generally" is not the same thing as "impossible". Non-competition clauses and restraints of trade can be useful where industry and specialist skill sets are niche and where the employee's position or access to confidential business information could be unfairly used by a competitor to get a leg up on the current employer.
In O'Brien's case, the argument that swung the ruling against her is that her brand and personality as a media presenter gives her the ability to significantly influence audience's receptiveness to alternate media outlets and thus could reasonably interfere with Discovery NZ's earnings and publicity.
The ERA decided that this justified Discovery NZ's enforcement of the restraint of trade. The counter argument provided by her new employer was that TV and radio aren't in direct competition with each, and it was unlikely that audience members of one would switch to a different medium and different time slot to follow O'Brien to her new gig. Although ultimately this was unsuccessful, it's worth noting the ERA still amended the restraint period from three months to seven weeks.
The high-profile nature of this case continues to generate important discussion and increased awareness about the implications of these clauses. However, the success of one high profile restraint of trade case does not mean that all, or even many, of these clauses would be generally enforceable.
At a high level, most employees don't need to be worried about restraints of trade, and most employers won't be able to use them to protect their interests.
Sylvie Thrush Marsh is an employment law expert. Photo / Supplied
Employees are right to question any restraints that an employer wants to impose on their post-employment activities and should understand the consequences of all terms of their employment.
In turn, employers should be looking for proactive tools to protect their interests, like building an effective company culture, and having strong relationships with customers and employees, instead of relying on narrowly interpreted and unreliable restraints to do the job.
- Sylvie Thrush Marsh is the head of Platinum Services at human resources platform MyHR.
