Enforcing Restraints of Trade: Delay of Three Months Fatal for Employer’s Case
A recent notable ruling has underscored the critical importance of prompt action for employers aiming to enforce restraint of trade clauses against former employees. A delay of just three months in initiating legal proceedings proved detrimental, leading to the dismissal of an employer’s application for interim relief.
Scyne Advisory Business Services Pty Ltd v Heaney [2024] NSWSC 275
The case involved Scyne Advisory Business Services Pty Ltd (Scyne), an emerging consulting firm resulting from PwC’s divestiture of its public sector advisory arm, and Ms Connie Heaney, formerly a partner at PwC since July 2022, who transitioned to Scyne’s employment on 9 November 2023.
On 29 November 2023, Ms Heaney tendered her resignation, disclosing her intention to join Downer Group, a direct competitor of Scyne.
Subsequently, on 7 December 2023, Scyne placed Ms Heaney on gardening leave, stipulating her last working day as 29 February 2024. Correspondence during this period reiterated the presence of restraint of trade provisions in Ms Heaney’s employment contract and sought assurances of compliance.
Ms Heaney acknowledged the existence of these provisions on 13 December 2023 but declined to sign the undertakings, maintaining her stance that her new role at Downer would not contravene the restraints.
Further correspondence ensued until Ms Heaney’s departure from Scyne on 29 February 2024.
On 4 March 2024, the same day Ms Heaney commenced her employment with Downer, Scyne initiated legal action in the NSW Supreme Court, seeking to restrain Ms Heaney from breaching the non-compete clauses in her contract.
Key Issues
In considering Scyne’s application for interim relief, the Court examined:
- Whether there existed a substantial legal question warranting judicial review, particularly concerning the likelihood of Ms Heaney violating her contractual obligations upon joining Downer.
- The balance of inconvenience between the parties, evaluating whether granting relief to Scyne would disproportionately disadvantage Ms Heaney.
- The timeliness of Scyne’s legal recourse, focusing on the three-month gap between Ms Heaney’s resignation and the commencement of proceedings.
Judicial Ruling
- Substantial Legal Question: The Court acknowledged the validity of Scyne’s concerns regarding Ms Heaney’s potential breach of contractual obligations. Despite Ms Heaney’s assertion of an internal role at Downer, evidence presented by Scyne indicated the risk of divulging confidential information and its detrimental impact.
- Balance of Inconvenience: Considering the circumstances, the Court found no undue hardship on Ms Heaney if interim relief were granted to Scyne.
- Timeliness: Notably, the Court emphasised the importance of prompt legal action in cases of potential breaches of contractual obligations. Scyne’s delay in initiating proceedings after becoming aware of Ms Heaney’s intentions was deemed unreasonable and fatal to its application for interim relief.
Verdict
In light of the delay and the pre-existing knowledge of the potential breach, the Court declined Scyne’s plea for interim relief, deeming it unjust to impede Ms Heaney’s employment with Downer.
Key Lesson for Employers
Employers must promptly initiate legal action upon becoming aware of potential breaches of contractual obligations by former employees. Waiting until after employment ceases may lead to significant delays and weaken the employer’s position. Therefore, swift and decisive action is imperative to protect the employer’s interests effectively.
