Woolworths Limited v Mark Conrad Olson

Introduction:

In Woolworths Limited v Mark Conrad Olson the issue of restraint of trade is being considered. Restraint of trade usually operates to impose limitations or restrictions on departing employees from working for a competitor after the termination of employment[1]. The restraints aim to protect an employer’s legitimate business interest along with its confidential information[2]. This analysis is mainly discussing the reasonableness of restraint and its legal and commercial significance.

Facts:

In Woolworth’s limited v Mark Conrad Olson[3], the respondent, is responsible for the management of a project, which contains confidential information to the company. Then, the respondent decided to join Franklins, a competitor with appellant. However, appellant dismissed him for sending some confidential information to others which in breach of his duty of confidentiality and fiduciary. Therefore, the appellant sought to a restraint of trade on respondent which restraint him from working for any other competitors in Australia for a period of six months. At first instance, Einstein J held that under common law, restraint of trade was invalid, since it covered too wide and went further than was necessary.[4] However, the court of appeal grants an injunction according to Restraint of Trade Act 1976 (NSW)

Issue:

How can a restraint of trade provision be properly enforced?

Whether the restraint goes further than reasonably necessary?[5]

Ratio:

To be able to enforce a restraint, the employer must prove its reasonableness.[6] It will depend on whether there is a legitimate interest that the restraint seeks to protect, whether it is against the public interest, and “balance of convenience.” In the case, these requirements are satisfied. The court rely on the base of Restraint of Trade Act, section 4 states that “Restraint clauses are only valid and effective if they are reasonable, or can be read down so as to be reasonable”[7] It upheld the decision that the information was confidential enough to be granted an injunction for six months.

Analysis and Evaluation of decisions:

First to consider is whether there is a legitimate interest that the restraint seeks to protect.[8] Legitimate interest usually involves trade secret, confidential information and client base.[9]In this case, Olson was involved in a project related to a system designed to transform the company’s product supply procedures.[10] The information of the project was “restricted to key employees who involved it”.[11] This means that such information is important enough to be regarded as confidential. Therefore, an employee is not allowed to benefit from using this information. So, it is quite reasonable for the company to put a restraint on former employees that prevent them from working for competitive business and such restraints are the most efficient and convenient way to prevent information from leaking out to the marketplace.[12]

However, truly confidential information should be distinguished from general know-how, skill, experience and publicly available information that an employee may achieve during the employment.[13]In Macquarie Corporate Telecommunications Pty Ltd v Julian Carter,[14]it is held that the approach to former client occurred by chance, and did not involve contract material or confidential information which can be obtained quickly. Therefore, restraint will not cover these.

Furthermore, Olson has behaved badly in sending confidential information to someone else. It apparently breaches his contractual and fiduciary duties,[15] which require the obligations imposed on a person to be honesty, trust and act for the benefit of the principal.[16]This is also against the case Faccenda Chicken Ltd v Flower[17], saying that it is employee’s implied duty not to reveal confidential information. From both of perspective listed above, the restraints held by court on the respondent are quite reasonable in order to protect truly confidential information for company.

Secondly, court should consider whether the restraint against public interest. That is to say,[18]whether the restraint goes further than is necessary to protect the legitimate interests of the employer, the employee, the public, and the impact to overall economic advantage or disadvantage.[19]This can be also discussed as “balance of convenience” which refers to the consideration of inconvenience brought from the action taken to the parties involved[20]. In order to decide whether a restraint is reasonable or not, the court takes two parties’ competing interests into account to judge whether restraint is compensated for it.[21]In this case, it is the employee’s freedom to earn a living against employer to protect its legitimate business interest.[22] Furthermore, a six-month restraint in return for the payment provided is fair and reasonable during the period of restraint.[23] It will not prevent Olson from earning a living. Therefore, it makes the restraint being more reasonable and enforceable and could be convincing.[24] However, employee should not be restrained in a nun-competing business.[25]

Commercial Implication of the case:

In today’s business environment, mobility of labor is common between business and business. To provide a stable and legal platform for commercial operation is crucial. This case successfully implements restraint of trade doctrine to prevent employee’s working for a competitor for a period of time after former employment. The main purpose of it is to reduce the possibility that confidential information will be leaked through employees to competitors which will bring vast detriment for company. Since there is no clear border on which kind of information should be classified as confidential, the safe action for an employer to protect his interest is to stipulate exact express terms in contract for restriction. In this way, it will make the entire business environment fair, rational and well-organized.

Legal development:

Although it is a successful case, some improvements can be considered. In the case, the employee was restrained for six months throughout Australia; the issue can be what is the time and geographical area that should be restrained. From my view, if the period is longer than a company need to develop a new project, it will be unreasonable and ineffective. Or should the restraint be used throughout Australia or just for a specific area.[26]Employers should ensure the restraints are well developed and reflect the real legitimate business interests but are not too broad so as not to make them void or unenforceable. [27]These remain contentious, so further negotiation can be put forward and standard of restraint of trade might be reinforced to make sure the implement of an effective restraint clause.

Conclusion:

Woolworths is authority for the situation that a restraint is used to protect confidential information by preventing the employee from joining a competitor for a period of time. [28]It is also an effective tool to protect employer’s legitimate interest. Moreover, the businesses have a better chance to prevent confidential information leaked by employees by restraining them instead of attempting to accuse of breaching confidence or fidelity.[29]

References:

• Alexandra, N (2004) Workplace and employee relations law update-Restraints of trade in New South Wales, Available at: http://www.mallesons.com/publications/WER_Update/7701134w.htm
• Frederick, B (2004) Restraints of Trade in New South Wales, University of New England Law Journal, Available at: http://www.austlii.edu.au/au/journals/UNELJ/2004/10.html#fn1
• Janine, D (2003) Restraint of Trade Clauses
• Joe, C (2005) Protecting your business by restraining employees Industrial Relations, 40 Law Society Journal
• Jollen,R (2005) No “Poaching”? Why not? A reflection on the legitimacy of post-employment restrictive covenants March-May, Commercial Law Quarterly 3
• LAC Lawyers (2007) Employment Contracts and Restraints of Trade Clauses Available at: http://www.laclawyers.com.au/document/Employment-Contracts-and-Restraint-of-Trade-Clauses.aspx
• Mark, P (2003) Restraint of Trade-Are you protecting you interests? Workplace Relations Publications Available at: http://www.bartier.com.au/publications/publicationDetail.aspx?PublicationID=66
• Michael, S (2005) Effectively Drafting and Enforcing Restraints of Trade “Human Resources Magazine” Issue 73 Available at: http://www.ablawyers.com.au/news/Effectivelydraftingandenforcingrestraintsoftrade.htm
• Peta, T (2008) Employee restraints—Why they are so important? Newsletter Article, Available at: http://www.tresscox.com.au/resources/resource.asp?id=304
• Simon, D (2005) Restraint of Trade Clause Enforced Available at: http://www.findlaw.com.au/article/13034.htm
• Student at Law (2008) The source of Fiduciary duties, LPAB Summer 2007-2008

1. What information do I need?

Title/topic:

Restraint of Trade What are the concepts/ ideas/ themes that make up my topic?

Think of synonyms, alternative spellings and variant forms of words.

Consider narrow, specific and broad words related to the concept.

[1] Richard, Emma, Employment Law Information Series, Professional Standards Legislation, Swaab Attorneys 2008

[2] Mark, P (2003) Restraint of Trade—Are you protecting your interests? Workplace Relations Publications

[3] Woolworths Ltd v Olson[2004] NSWCA 372

[4] Joe, C (2005) Protecting your business by restraining employees Industrial Relations, 40 law society Journal

[5] WOOLWORTHS LTD v OLSON 7-10, 13-15, 17, 22 September 2004 — Sydney

[2004] NSWSC 849

[6] Janine, D (2009) Restraint of Trade Clauses

[7] Restraints of Trade Act 1976 Section 4(1)

[8] Janine, D (2003) Restraint of Trade Clauses

[9]Janine, D (2003) Restraint of trade clauses, available at: http://www.brainbox.com.au/members/brainbox/home.nsf/link/30042003-Restraint-of-trade-clauses

[10] Woolworths Ltd v Olson[2004] NSWCA 372

[11] Joellen, R (2005) No poaching? Why not? A reflection on the legitimacy of post-employment restrictive covenants, commercial law quarterly 3

[12] Joellen, R (2005)

[13] Joellen, R (2005)

[14] Macquarie Corporate Telecommunications Pty Ltd v Julian Carter District Court of NSW matter no.3036 of 2003, 1 November 2004

[15] Woolworths Ltd v Olson[2004] NSWCA 372

[16] Fiduciary duties (2008) Student by law, LPAB Summer 2007-2008 Available at: http://www.studentatlaw.com/articles/152/1/Fiduciary-duties/Page1.html

[17] Faccenda Chicken Ltd v Fowler [1986]1 All ER 617

[18] Newsletter Article (2008) Employee restraints-Why they are so important Available at: http://www.tresscox.com.au/resources/resource.asp?id=304

[19] Janine, D (2003) Restraint of Trade Clauses

[20] Available at: http://www.bailiff.com.au/Legaldictionary/B-legaldictionary.asp

[21] Janine, D (2003) Restraint of Trade Clauses

[22] Woolworths Ltd v Olson[2004] NSWCA 372

[23] Joe, C (2005) Protecting your business by restraining employees Industrial Relations, 40 law society Journal

[24] Workplace and employee relations law update- December 2004 Restraints of trade in NSW

[25] Newsletter Article (2008)

[26] Mark, P (2003) Restraint of Trade—Are you protecting your interests? Workplace Relations Publications

[27] Michael, S (2005) Effectively Drafting and Enforcing Restraints of Trade, Human Resources Magazine Available at: http://www.ablawyers.com.au/news/Effectivelydraftingandenforcingrestraintsoftrade.htm

[28] Joe, C (2005) Protecting your business by restraining employees Industrial Relations, 40 law society Journal

[29] Joe, C (2005)