Workwise: executive departures and recruitment

Articles Written by Ruveni Kelleher (Partner), Polina Churilova

JWS represented Seven Network (Operations) Pty Limited (Seven) and its executive programmer John Stephens in successfully defending the Supreme Court proceedings brought against them by Network Ten Pty Limited (Ten). JWS also recently achieved a successful outcome for Yahoo!7 Pty Ltd (Yahoo!7) in the proceedings brought against their new CEO by Fairfax Media Management Pty Ltd (Fairfax). These cases highlight important issues relevant to the departure and recruitment of senior executives. The judgement handed down on 29 May 2014 in Network Ten Pty Limited v Seven Network (Operations) Pty Limited & Anor [2014] NSWSC 692 provides important guidance for employers regarding the recruitment of employees and the making of counter-offers to employees who have accepted employment elsewhere.

Background

Mr Stephens was employed by Seven and signed a contract of employment with Ten on 6 March 2014 (Ten Contract). The contract was for a fixed term of two years commencing on 9 June 2014, after the expiry of his notice period with Seven.  On 7 March 2014, Mr Stephens resigned from Seven by providing 3 months' notice and was required to work out the notice period. On 10 March 2014, Mr Stephens accepted a counter-offer by Seven. Mr Stephens then notified Ten that he withdrew his acceptance of the Ten Contract.

Orders sought

Ten commenced proceedings against Mr Stephens for breach of the Ten Contract and against Seven for inducing the breach of contract. Ten sought to restrain Mr Stephens from working at Ten's competitors and to restrain Seven from assisting, inducing or otherwise procuring Mr Stephens to not comply with his obligations under the Ten Contract.

Outcome

On 17 March 2014, Justice Brereton declined to grant Ten's application for interlocutory injunctive relief on the basis that granting the injunction would effectively "sterilise" Mr Stephens from working for anyone but Ten for two years against his will or force him to remain "idle" for that period.

In the final decision, Justice Stevenson held that Ten was only entitled to a declaration that the Ten Contract remained of foot and as it was not otherwise entitled to any of the relief sought, Ten's claim was dismissed. Importantly, His Honour held that:

  • by accepting Seven's counter-offer, Mr Stephens did not breach the terms of the Ten Contract because it only prohibited him from soliciting or accepting any offers of employment from any other entity without Ten's prior consent "during the term of his employment" with Ten, which would have only started on 9 June 2014;
  • as there was no breach of the Ten Contract, Seven could not have been found to have knowingly procured any breach. However, an employer can be found to induce a breach of contract if it merely intends to interfere with contractual rights and that is one of the reasons for the breach.  This applies even if the employer does not know all the relevant terms of the contract and its conduct did not alone cause the breach; and
  • he would not grant the injunctive relief sought by Ten even if he had found that Mr Stephens had breached the contract because if would effectively force Mr Stephens to work for Ten or remain "idle" for two years.

Fairfax Media Management Pty Limited v Harrison [2014] NSWSC 470 is an important case considering post-employment restraint obligations.

Background

Mr Harrison was the Group Sales Director at Fairfax who, after resigning from Fairfax in December last year, commenced employment with Yahoo!7 as CEO on 9 April 2014. Mr Harrison was subject to a 6 month restraint period under his contract with Fairfax which was to expire on 11 June 2014.

Mr Harrison's contract with Fairfax contained a 12 month non-solicitation and a 6 month non-compete restraint. The non-compete restraint purported to prevent Mr Harrison from being involved in a business competitive with his "Business Unit" at Fairfax and commenced to run after notice of termination of the employment was given.

Outcome

Although Mr Harrison commenced working for Yahoo!7 before the 6 month non-compete expired, Mr Harrison provided undertakings to the court regarding compliance with the non-solicitation restraint and the confidentiality obligations.

Justice Ball was satisfied that Fairfax had a strongly arguable case that the restraint of 6 months was reasonable.

However, Ball J exercised his discretion to refuse the relief sought by Fairfax based on the following three factors:

  • there was little risk that Mr Harrison would be able to make use of the customer connections he had developed while at Fairfax given the restraint would only run for a further 7 weeks and in view of the undertakings offered by Mr Harrison. Moreover, the evidence showed that Yahoo!7 already had strong relationships with the relevant customers and Mr Harrison would not be directly involved in negotiations of their contracts;
  • there was little evidence of the risk of Mr Harrison using confidential information to the detriment of Fairfax; and
  • Fairfax had delayed approximately 3 weeks before replying to Yahoo!7's letter putting it on notice of Mr Harrison's proposed commencement date.  Fairfax also delayed for a further week after finding out Mr Harrison had actually commenced employment with Yahoo!7, before commencing the proceedings. The delays were substantial in the context where the injunction sought would only last for 7 weeks and would be disruptive to Mr Harrison and Yahoo!7.

Lessons for employees

  • Employment contracts with key employees should stipulate that non-competition and similar obligations commence when the contract is signed, unless otherwise agreed.
  • Recruiters and prospective employers should be cautious not to engage in discussions regarding offers of employment with candidates unless they are fully informed of the terms of the candidates' current employment contracts. This particularly applies to negotiating counter-offers with current employees who have already signed a contract with another employer.
  • Employers seeking to enforce compliance with post-employment restrictive covenants must act swiftly as any delay may sway the courts discretion against granting the relief. Even a week's delay may be too late.
Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

Related insights Read more insight

Common sense prevails for personal leave: High Court decision in Mondelez

The High Court of Australia handed down its much awaited decision about personal leave entitlements in Mondelez Australia Pty Ltd v AMWU & Ors and Minister for Jobs and Industrial Relations v AMWU ...

More
Labour hire – contractors or employees?

Following on from the May 2020 Full Federal Court decision in Rossato, in July 2020 the Full Federal Court handed down its judgment in another labour hire case, Construction, Forestry, Maritime...

More
Review your workplace COVID Plan

Yesterday’s announcement by the Victorian Premier of the Stage 4 restrictions for workplaces means it is timely for employers to review their COVID Plan.

More