24 August 2012

1.5 million reasons to take employment restraints seriously

Employment restraints have been a topic of conversation around recruiters as long as I have been in the industry.

 
A typical employer will include, in a recruiter's employment contract, a period of post-employment restraint which states a period of time that a recruiter is restricted from contacting candidates and clients with whom they were in contact with as part of their previous employment.
 

Most contracts state restraint periods ranging from three months to twelve months, depending upon the seniority of the person.
 
Considering how many agency recruiters move employers, it's uncommon in Australia or New Zealand, for a dispute to reach court.

Two recent cases on both sides of the Tasman, have strengthened the precedents of courts upholding ‘fair and reasonable' employee restraint periods.

Last month, industry news service ShortList, reported;

Two former Kelly Services recruiters in New Zealand have failed in a court bid to have their restraint provisions thrown out....... Judge Christina Inglis said the restraint was "relatively limited [in] scope". She noted that Kelly had only to prove that the reasonableness of the restraint was "seriously arguable", and in her view, a term of six months met this definition....... Judge Inglis upheld the restraints, which expire in mid-September, and ordered costs in favour of Kelly.
 
On Friday last week ShortList reported a huge win for RPO provider HRX when they were awarded costs ($1.5 million was quoted in the ShortList article) in their long running dispute with former Director, Brent Pearson, who resigned last year to join Talent2.
 
The matter in dispute was Pearson's two year period of restraint which he was fighting to have overturned through an appeal to the full bench of the Federal Court. The original Federal Court decision, banning him until November 2013 from having any role whatsoever in any other HR or recruitment outsourcing business operating in Australia, was handed down in March this year.
 
As the ShortList article states (and I agree):
 
The case is important for the recruitment industry because it further establishes the crucial business interest recruitment companies have in developing and maintaining their client relationships, and their right to require and enforce reasonable restraints on their employees.
 
Generally, recruiters are optimistic and not great with detail (eg clauses in contracts) ; both traits that may cause them significant financial hardship if they decide to play fast and loose with their restraint provisions when moving to a competitor.
 
The warnings are clear for all to see.

2 comments:

  1. Ross, these are two examples of these sorts of restraints going in favour of the employer. Do you know of any examples in which the court has sided with the employee? If so, have you noticed any pattern forming with why a court would side with one over another in differing circumstances? Have you noticed any trigger points?

    Thanks in advance.

    Steve Ludlow

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  2. @Steve - One of my readers pointed out this case to me > http://bit.ly/SFrUO1 where a court sided with an employee on a restraint, although it wasn't a recruiter. I am not a close enough observer to make an informed comment about any patterns although the behaviour of the employee immediately before, and after, a resignation seems to be a factor in the courts judging whether the employee 'can be trusted' to be re-employed with a competitor but still stick to the terms of their restraint.

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