Employers experience growing success in enforcing restraint of trade

On 18 February 2016, the New South Wales Supreme Court upheld BGC Partners’ restraint of trade clause against senior employee and broker, Mr Anthony Hickey. The Court restrained Mr Hickey from starting his employment with competitor ICAP for a total of 9 months.

This decision reflects the growing success employers are experiencing enforcing restraint of trade provisions.

A restraint of trade aims to restrict an employee’s post employment actions by limiting where they can work and their use of confidential information (such as client lists) for a specified period post-employment.

Traditionally, restraint of trade clauses were thought to be largely unenforceable as they reduce competition and conflict with an individual’s freedom to work.  However, a restraint may be upheld if an employer can demonstrate that it is necessary to protect a legitimate business interest.

For BGC Partners, Mr Hickey’s contract purported (among other things) to prevent him:

  • soliciting or enticing BGS Partners’ clients or employees away from the business;
  • procuring orders or deals or carrying on business with a client or counterparty of the business with whom he had material and/or regular dealings;

for a period of six months after the contract was terminated.

BGC Partners sought to enforce Mr Hickey’s restraint obligations on the basis that its protectable interest was in the customer connections he developed as a broker specialising in interest rate swaps.  The company argued this was particularly significant considering BGC Partners has only two main competitors within this market, one of which is ICAP.

Several factors were considered by the Court when determining the validity of the restraint clause:

  • BGC Partners’ investment in the professional relationships Mr Hickey developed with their clients. BGS Partners could demonstrate that it expended considerable resources in building and strengthening these relationships, including client functions and a trip to New Zealand to watch rugby;
  • the reasonableness of the restraint. The Court found that if Mr Hickey was prevented from working for 6 months, (plus 3 months as the notice period to terminate the contract), it would provide BGS Partners with a reasonable opportunity to protect and preserve its client connections;
  • whether Mr Hickey would suffer hardship as a result of the restraint period. In this instance, BGC Partners would continue to pay Mr Hickey his salary for 3 of the 9 months, (his contracted notice period).  In addition, Mr Hickey had negotiated a $500,000 sign-on fee with ICAP, to be paid within a week of Mr Hickey commencing.  Accordingly, the Court determined he would not suffer hardship.

Overall, BGS Partners’ success highlights the value of a well-drafted restraint of trade clause in employment contracts for senior employees and professionals.  It also suggests that if an employer has a legitimate protectable interest, it may be worthwhile enforcing a restraint of trade provision.

Written by Nicola Pearce.

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