International Cleaning Services (Australia) Pty Ltd (ACN 008 079 463) v DMYTRENKO - [2020] SASC 222

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
INTERNATIONAL CLEANING SERVICES (AUSTRALIA) PTY LTD (ACN 008 079 463) v DMYTRENKO
[2020] SASC 222
Judgment of The Honourable Justice Stanley
13 November 2020
TRADE AND COMMERCE - OTHER REGULATION OF TRADE OR COMMERCE - RESTRAINTS OF TRADE - VALIDITY AND REASONABLENESS - PARTICULAR CASES - EMPLOYMENT
TRADE AND COMMERCE - OTHER REGULATION OF TRADE OR COMMERCE - RESTRAINTS OF TRADE - ENFORCEMENT OF AGREEMENT - REMEDIES FOR BREACH OF AGREEMENT - INJUNCTION
TRADE AND COMMERCE - OTHER REGULATION OF TRADE OR COMMERCE - RESTRAINTS OF TRADE - CONSTRUCTION OF AGREEMENTS - PARTICULAR AGREEMENTS
In November 2016 the respondent entered into an employment contract with the applicant. The applicant is a company that provides large scale commercial cleaning services. The contract specified the respondent’s position description as being a “business analyst”. It contained, inter alia, the following terms:
Following termination of employment with the Company for whatever reason the Employee shall not:
10.8.1 be employed or interested directly or indirectly in any activity, occupation or project which would or might have the effect of promoting or assisting directly or indirectly any competitor of the Employer in any way;
10.8.2 either on the Employee’s own account or for any other person in any way deal with, solicit, interfere with or endeavour to entice away from the Company any person who at any time during the Employee’s employment with the Company has been a client of the Company; or
10.8.3 induce any of the Company’s clients or staff to terminate, withdraw or amend their terms of engagement with the Company; or
10.8.4 work directly or indirectly for one of ICS’s clients,
For a period of:
10.8.5 Twelve (12) months in the state of South Australia.
On 22 June 2020 the respondent gave notice of his intention to resign from his employment with the applicant. The respondent notified the applicant that he intended to commence employment with Cirka Group Pty Ltd (Cirka). The respondent had accepted a position as the South Australian State Manager of Cirka. Like the applicant, Cirka is a national cleaning provider.
The applicant has sought an injunction to restrain him from doing so for a period of 12 months from the date his resignation took effect, namely, 14 August 2020. The respondent opposes that injunction.
Held:
1. The respondent was employed initially as a business analyst. However, his position from the outset also required him to perform work in the nature of business development.
2. The applicant had a legitimate interest in protecting its goodwill from the risk that if the respondent was to leave its employment existing clients or potential clients he had been cultivating might follow him to his new employer.
3. The applicant and Cirka are, and were in November 2016, competitors in the commercial cleaning industry. In accepting employment with Cirka, the respondent is in breach of clause 10.8.1.
5. The test of reasonableness for the duration of a non-competition covenant, when it is justified by protection of customer connection, is the period of time required to break the connection with the employee. In this case, a 12 month restraint is reasonable to protect the applicant’s legitimate interests.
6. Clause 10.8.1 is cast in wider terms than is necessary to protect the applicant’s legitimate interests because it seeks to extend beyond working in or for a competitor of the applicant. However, the offending portion it can be severed making the clause reasonable. The clause would read:
10.8.1 be employed directly or indirectly in any competitor of the Employer in any way;
7. The restraint is not unreasonable. It should be enforced. The applicant is entitled to the injunctive relief it seeks.
Rentokil v Lee (1995) 66 SASR 301; NE Perry Pty Ltd v Judge (2002) 84 SASR 86, applied.
Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449; Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9, distinguished.
Lindner v Murdock’s Garage (1950) 83 CLR 628; Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; Woolworths Ltd v Olsen [2004] NSWCA 372; Jardin v Metcash Ltd (2011) 285 ALR 677; Littlewoods Organisation Limited v Harris [1977] 1 WLR 1472; Red Bull Australia Pty Ltd v Stacey (2011) 214 IR 299; Red Bull Australia Pty Ltd v Stacey (2011) 214 IR 299; Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341; AGA Assistance Australia Pty Ltd v Tokody (2012) 224 IR 219, discussed.
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535; Bridge v Deacons [1984] AC 705; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317; Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd (1973) 133 CLR 288; Geraghty v Minter (1979) 142 CLR 177; Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657; Herbert Morris Ltd v Saxelby [1916] 1 AC 688; Haynes v Doman Haynes v Doman [1899] 2 Ch 13; Butt v Long (1953) 88 CLR 476; IF Asia-Pacific Pty Ltd v Galbally (2003) 59 IPR 43; Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337; Ausdale Enterprises Pty Ltd v Sandford [2006] WASCA 191; Putsman v Taylor [1927] 1 KB 637; Elsley v JG Collins Insurance Agencies Limited [1978] 2 SCR 916; IRAF Pty Ltd v Graham [1982] 1 NSWLR 419; Stenhouse Australia Ltd v Phillips [1974] AC 391, considered.

INTERNATIONAL CLEANING SERVICES (AUSTRALIA) PTY LTD (ACN 008 079 463) v DMYTRENKO
[2020] SASC 222
STANLEY J:
Introduction

In November 2016 the respondent entered into an employment contract with the applicant. The applicant is a company that provides large scale commercial cleaning services. It operates throughout Australia and in New Zealand and Singapore. The respondent had not previously worked in this industry. The contract specified the respondent’s position description as being a “business analyst”. The respondent resigned his position on 22 June 2020 to take up employment with Cirka Group Pty Ltd (Cirka). The applicant has sought an injunction to restrain him from doing so for a period of 12 months from the date his resignation took effect, namely, 14 August 2020.
The respondent’s employment contract contained the following terms:
10.     TERMINATION
…
10.8Following termination of employment with the Company for whatever reason the Employee shall not:
10.8.1be employed or interested directly or indirectly in any activity, occupation or project which would or might have the effect of promoting or assisting directly or indirectly any competitor of the Employer in any way;
10.8.2either on the Employee’s own account or for any other person in any way deal with, solicit, interfere with or endeavour to entice away from the Company any person who at any time during the Employee’s employment with the Company has been a client of the Company; or
10.8.3 induce any of the Company’s clients or staff to terminate, withdraw or amend their terms of engagement with the Company; or
10.8.4work directly or indirectly for one of ICS’s clients,
For a period of:
10.8.5Twelve (12) months in the state of South Australia.
…
13.     CONFIDENTIAL INFORMATION
13.1Each party may use the Confidential Information of a disclosing party only for the purpose of this Agreement and must keep confidential all Confidential Information of each disclosing party except to the extent (if any) the receiver of any Confidential Information is required by law to disclose the Confidential Information.
13.2Either party may disclose Confidential Information of the other party to Personnel of the Company who have a need to know the Confidential Information for the purpose of this Agreement but only if the Personnel of the Company execute a confidentiality undertaking in a form approved by the other party.
13.3All documents and other material containing Confidential Information of either party will be returned to the party immediately upon termination or expiration of this Agreement.
13.4The parties’ obligation to keep any information confidential will survive termination or expiration of this Agreement.
13.5The parties agree that the Company will be entitled to an injunction restraining the Employee from any action or possible action which would be in breach of this clause 13.
13.6The obligations of confidentiality under this Agreement do not extend to information that:
13.6.1was rightfully in the possession of the receiving party before the negotiations leading to this Agreement;
13.6.2is, or after the day of this Agreement is signed becomes, public knowledge (otherwise than as a result of a breach of this Agreement);
13.6.3is required by law to be disclosed.
…
16.     SEVERENCE
Each provision of this Agreement is independent of the other. Any provision which is prohibited or unenforceable in any jurisdiction will be ineffective to the extent only of such prohibition or unenforceability, and the other provisions will remain in force.
The contract included a definition of “confidential information” in the following terms:
“Confidential Information” means all information passing from one party to the other party relating to the business of the disclosing party, including but not limited to trade secrets, drawings, know-how techniques, source and object code, business and marketing plans and projections, arrangements and agreements with third parties, financial information, client information and client information proprietary to clients, formulae, supplies, client lists, concepts not reduced to material form designs, plans and models but excludes information:
(a)which is in or becomes part of the public domain other than through breach of this Agreement; or
(b)which the receiving can prove by contemporaneously written documentation was already known to it at the time of disclosure by the disclosing party or its representatives; or
(c)which the receiving party acquires from a third party entitled to disclose it.
Appendix 2 to the contract described the position objectives in the following terms:
·Reviews request for tender documentation
·Manages and compares ICS benchmarks for efficiencies and profit improvement
·Prepares financial models for tender requests for approval
·Undertakes scenario analysis as part of the tender financial modelling process
·Prepares and submits tenders and EOI proposals
·Visits sites to understand workflows and recommend improvements
·Manages new contract transitions to ensure that budget and tendering assumption efficiencies are achieved
·Contract reviews and legals
·Executive assistance
Appendix 2 prescribed the following performance standards:
·The provision of excellent customer (internal and external) service and continuous improvement
·Professional approach to dealing with clients, staff and colleagues
·Build new business and client retention
·Active contribution towards improving company profitability
·A commitment to quality assurance principles and application
·Demonstrated Leadership and contribution to achieving ICS business plan
·Demonstrated ability in problem solving through use of initiative
·A high level of responsiveness to clients, potential clients and staff
·Demonstrated commitment to ICS policies, values and practices
·Contribution as a team member to communication, productivity and service
·Work in accordance with budget
At the trial there was a dispute whether the respondent was undertaking business development work from the commencement of his employment. There was no issue that later in the course of his employment a significant aspect of his work was business development and his job title changed to General Manager, Business Development. I will come back to this issue.
It is common ground that once he undertook a business development role with the applicant, the respondent was responsible for business development, both securing new business and negotiating contract renewals and variations with existing clients;[1] was the most senior business development person within the applicant; was part of the applicant’s executive team; and was closely familiar with much of the applicant’s confidential information, including its pricing methodology.
[1] T 58.27-33.
On 22 June 2020 the respondent gave notice of his intention to resign from his employment with the applicant. The respondent notified the applicant through its Chief Executive, Mr David Pollock, that he intended to commence employment with Cirka. The respondent had accepted a position as the South Australian State Manager of Cirka.
Like the applicant, Cirka is a national cleaning provider. At issue is whether Cirka is a competitor of the applicant for the purpose of clause 10.8.1 of the respondent’s contract of employment.
The applicant seeks a final injunction restraining the respondent from commencing or continuing in employment with Cirka or a direct competitor of the applicant for a period of 12 months. In its revised application it seeks these orders:
2.A final injunction be granted restraining the Respondent for the period of 12 months from the termination date of the Respondent’s employment with the Applicant in the state of South Australia from:
(a)     commencing or continuing employment with Cirka Group Pty Ltd (ACN 128 786 470);
(b)     being employed, engaged by or having an interest in any business or operation in South Australia which competes with the Applicant’s cleaning business;
(c)     on his own account or for any other person from in any way dealing with, soliciting, interfering with or endeavouring to entice away from the Applicant, any person who at any time during the Respondent’s employment with the Applicant has been a client of the Applicant;
(d)     inducing any client of the Applicant to terminate, withdraw or amend the terms of their engagement with the Applicant;
(e)     inducing any employee of the Applicant to terminate their employment with the Applicant; and
(f)     working (directly or indirectly) for a client of the Applicant.
3.A final injunction be granted restraining the Respondent from disclosing or using the Applicant’s confidential information, as defined in the attached schedule.
“Confidential information” is defined in the attached schedule to mean all information relating to the business of the applicant including but not limited to:
Trade secrets, drawings, know-how, techniques, source and object code, business and marketing plans and projections, arrangements and agreements with third parties, financial information, client information and client information proprietary to clients, formulae, supplies, client lists, concepts not reduced to material form designs, plans and models.
The respondent opposes the Court making orders 2(a) and (b) but submits to the other orders sought by the applicant.
Orders 2(a) and (b) are derived from clause 10.8.1 of the employment contract. The resolution of these proceedings depends on whether the restrictive covenant in clause 10.8.1 is enforceable.
The applicant contends that the restraint is reasonably necessary to protect its legitimate interest in protecting its goodwill. It contends it has legitimate interests in protecting its customer relations and pricing methodology. The respondent contends that the restraint is void and unenforceable as a covenant in restraint of trade that goes further than is reasonably necessary to protect the applicant’s legitimate interests. He submits that the applicant and Cirka do not compete in the same business sector. That is in dispute. In the alternative, he contends that the services which he proposes to provide to Cirka are sufficiently different from those covered by clause 10.8.1 that there is no breach of the employment contract. He submits that the state manager role, being an operational role, is sufficiently different from the role covered by the restraint that there is no breach. That is also in dispute.
Principles applicable to restrictive covenants in employment contracts
The principles applicable to the enforceability of a contract in restraint of trade are well settled.
At common law a restraint of trade is contrary to public policy and void unless it can be shown that the restraint is, in the particular circumstances of the case, reasonable.[2] Reasonableness, in that context, is to be judged having regard to the legitimate interests of the person in whose favour the restraint operates.[3] An employer is not entitled to protect itself against mere competition by a former employee, and that employee is entitled to use his or her skill, experience and know-how acquired in the service of the former employer in legitimate competition.[4] The validity of the covenant in an employment contract is to be judged at the date of entry into the contract.[5]
[2]    Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565.
[3]    Bridge v Deacons [1984] AC 705 at 714.
[4]    Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329.
[5]    Lindner v Murdock’s Garage [1950] HCA 48, (1950) 83 CLR 628 at 653; Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd [1973] HCA 40, (1973) 133 CLR 288 at 318.
A stricter view is taken of covenants in restraint of trade in employment contracts than those contained in contracts for the sale of a business.[6] The onus of proving the special circumstances justifying the restraint is on the person seeking to enforce the covenant.[7] So far as the parties’ interests are concerned the restraint must impose no more than adequate protection to a party in whose favour it is imposed.[8] If the Court is satisfied that the restraint confers greater protection than can be justified, the restraint will be unreasonable and therefore unenforceable.[9]
[6]    Geraghty v Minter [1979] HCA 42, (1979) 142 CLR 177 at 185; Wallis Nominees (Computing) Pty Ltd v Pickett [2013] VSCA 24 at [14], (2013) 45 VR 657 at 662.
[7]    Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 715; Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd [1973] HCA 40, (1973) 133 CLR 288 at 308 and 317.
[8]    Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 708.
[9]    Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd [1973] HCA 40, (1973) 133 CLR 288 at 306.
However, in construing a restraint a court will not treat it as providing a protection which is more than reasonable, and so hold it void, because there are circumstances, falling within the restraint that are either unlikely to occur or not within the contemplation of the parties, where the court can sever that part of the restraint which is unreasonable, so as to preserve the validity of the remainder of the restraint clause.[10] Where the restraint clause is ambiguous, a covenant in restraint of trade in an employment contract will be construed in favour of the employee, so that a narrower construction of the scope of a restraint will be preferred to a broader construction.[11] However, this does not authorise the restrictive interpretation of general words simply to save a covenant from invalidity for contravention of public policy.[12]
[10] Haynes v Doman [1899] 2 Ch 13 at 24-26; Rentokil v Lee [1995] SASC 5318, (1995) 66 SASR 301 at 304 and 319-321.
[11] Butt v Long [1953] HCA 76, (1953) 88 CLR 476 at 487.
[12] Butt v Long [1953] HCA 76, (1953) 88 CLR 476 at 487; IF Asia-Pacific Pty Ltd v Galbally [2003] VSC 192 at [108], (2003) 59 IPR 43 at 61.

The issue of reasonableness is to be determined having regard to what the restraint entitles or requires the parties to do as distinct from what they intend to do or have actually done.[13] However, the Court may take into account future probabilities which could have been foreseen.[14] The question is whether the covenant is a reasonable one for the parties to agree at the outset of the contract on the best assessment which they could then make of the future. In this respect subsequent developments may be considered.[15] Moreover, because the parties have to agree what is reasonable at the time when the restraint is created, some allowance must be made for potential developments in the role of the employee and the nature of the business for which he or she might be responsible in the future.[16]
[13] Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 344; Woolworths Ltd v Olsen [2004] NSWCA 372 at [40].
[14] Lindner v Murdock’s Garage [1950] HCA 48, (1950) 83 CLR 628 at 653; Ausdale Enterprises Pty Ltd v Sandford [2006] WASCA 191 at [9].
[15] Putsman v Taylor [1927] 1 KB 637 at 647; Ausdale Enterprises Pty Ltd v Sandford [2006] WASCA 191 at [9].
[16] Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [53].
It is well established that an employer’s customer connection is a legitimate business interest which can support a reasonable restraint of trade.[17]
[17] Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111 at [46], (2012) 205 FCR 187 at 198; Jardin v Metcash Ltd [2011] NSWCA 409 at [91], [95] and [97], (2011) 285 ALR 677 at 695 and 696; Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 at [25], (2006) 71 NSWLR 9 at 17-18; Lindner v Murdock’s Garage [1950] HCA 48, (1950) 83 CLR 628 at 633-634, 650 and 654; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [29]-[33].
An employer with a relevant protectable interest can restrain an employee from accepting a position the nature of which is such that the employee would be likely to utilise confidential information or trade connections which have been acquired in the course of the employment. A restraint against accepting such a position will be read in a sensible fashion and, ordinarily, as not intended to apply to such a position in name but in which there is no risk of anything happening against which the employer could reasonably require protection.[18]
[18] Rentokil Pty Ltd v Lee [1995] SASC 5318, (1995) 66 SASR 301 at 305.
Specifically, the employer is entitled to be protected against unfair competition based on the use by the employee after termination of employment of the customer connection which the employee has built up during the employment.[19] An employer is able to obtain effective protection against an employee working in a competitive business when the employee's engagement in that business would enable the employee to make use of the knowledge of and influence over customers of the employer which the employee might have acquired and to make use of protectable information in the possession of the employer.[20]
[19] Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [43].
[20] Rentokil Pty Ltd v Lee [1995] SASC 5318, (1995) 66 SASR 301 at 303.
An employer who has a protectable interest is not limited to a restraint which prevents the specific conduct which would infringe that protectable interest. The employer is not restricted to a restraint which prohibits solicitation of former customers or making use of confidential information. It is well established that an employer may restrain a former employee from engaging in a business when to do so is likely to present an opportunity to behave in a manner which would infringe upon or damage the employer's protectable interest.[21]
[21] Rentokil Pty Ltd v Lee [1995] SASC 5318, (1995) 66 SASR 301 at 304; NE Perry Pty Ltd v Judge [2002] SASC 312 at [22], [61] and [101], (2002) 84 SASR 86 at 89, 96 and 103-104.
In Rentokil Pty Ltd v Lee[22] Doyle CJ stated:[23]
… an employer who has a protectable interest … is not restricted to a restraint which prohibits solicitation of former customers or making use of confidential information … [The employer] can restrain an employee from accepting a position the nature of which is such that the employee would be likely to utilise confidential information or trade connections which have been acquired in the course of the employment.
[22] [1995] SASC 5318, (1995) 66 SASR 301.
[23] Rentokil Pty Ltd v Lee [1995] SASC 5318, (1995) 66 SASR 301 at 304-305.
As Lord Denning said in Littlewoods Organisation Limited v Harris,[24] which was approved by Brereton J in Cactus Imaging Pty Ltd v Glenn Peters,[25] experience has shown that it is unsatisfactory simply to have a covenant against disclosing confidential information, because it is difficult to draw the line between information which is confidential and information which is not, and very difficult to prove a breach when the information is of such a character that an employee can carry it away in his or her head, so that the only practical solution is to take a covenant from the employee by which he or she undertakes not to work for a trade competitor.[26]
[24] [1977] 1 WLR 1472.
[25] [2006] NSWSC 717 at [13], (2006) NSWLR 9 at 14-15.
[26] [1977] 1 WLR 1472 at 1479.
Similarly, in Woolworths Ltd v Olson,[27] Mason P, with whom McColl and Bryson JJA relevantly agreed, said that:[28]
A recognised method of such protection is the procurement of a restraint upon the employee given access to such information taking up employment with a competitor whom he might be willing to provide with such information. A reasonable employment restraint is easier to enforce than a breach of confidence or breach of copyright claim; it removes the temptation for the former employer to offer and for the new employer to solicit confidential information; and it provides certainty of definition as regards the area of confidential information to be protected.
[27] [2004] NSWCA 372.
[28] [2004] NSWCA 372 at [67].
In Lindner v Murdock’s Garage,[29] Latham CJ, with whom on this issue Webb J agreed, identified the protectable interest as trade connection and goodwill through the employee’s personal contact with customers. In such cases the covenant in restraint of trade is not a covenant against mere competition but is a covenant directed to securing a reasonable protection of the business interests of the employer, and in the circumstances is not unjust to the employee.[30]
[29] [1950] HCA 48, (1950) 83 CLR 628.
[30] [1950] HCA 48, (1950) 83 CLR 628 at 633-34; see also at 645, 650 and 653-54.
In respect of such a non-competition clause, Latham CJ said that where an employee is in a position which brings him into close and personal contact with the customers of a business in such a way that he may establish personal relations with them of such a character that if he leaves his employment he may be able to take away from his former employer some of his customers and thereby substantially affect the proprietary interest of that employer in the goodwill of his business, a covenant preventing him from accepting employment in a position in which he would be able to use to his own advantage and to the disadvantage of his former employer the knowledge of and intimacy with the customers which he obtained in the course of his employment should, in the absence of some other element which makes it invalid, be held to be valid.[31] Although Latham CJ was in dissent as to the disposition of the appeal, this statement of principle is correct.[32]
[31] [1950] HCA 48, (1950) 83 CLR 628 at 636.
[32] NE Perry Pty Ltd v Judge [2002] SASC 312 at [22], [61], (2002) 84 SASR 86 at 89, 96.
The ability to influence a client’s custom is a protectable asset. There is no requirement to establish that the employee was in a position to control whether the client remained with or left the business. The employer is entitled to protection against the use of the personal knowledge of and influence over its clients, which the employee might acquire during the course of his or her employment, so as to undermine the client connection. The employer is entitled to protection against the "possibility" of its business connection being adversely affected by the use of that personal knowledge and influence.[33]
[33] Jardin v Metcash [2011] NSWCA 409 at [97], (2011) 285 ALR 677 at 696.
The need for the enforcement of such a non-competition restraint, rather than merely a restraint against non-solicitation of clients, arises because the stronger the customer connection which the employee develops, the less will solicitation be required. The strongest connections are those in which the client will follow unsolicited because of his or her connection with the employee, notwithstanding that that connection belongs to the employer. An anti-solicitation covenant is insufficient to protect an employer’s customer connection in that circumstance.[34]
[34] Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111 at [51], (2012) 205 FCR 187 at 200; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [84].
Moreover, it is recognised that the protection afforded by non-solicitation and confidentiality provisions is unlikely to be perfect given the difficulties of proof of breach.[35] In Lindner v Murdock's Garage,[36] Latham CJ also observed that an employer's interest in customer connections may not be sufficiently protected by a covenant against solicitation and that a covenant against competition may be a more reasonable form of protection as “... a covenant against solicitation ... is difficult to enforce; it is difficult to show breach and difficult to frame an injunction. The [employer] is entitled to protect himself by a covenant against competition, provided that it is not wider than is reasonably necessary to safeguard his proprietary interest against unfair use by the former [employee] of information gained during the [employment].”[37]
[35] Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111 at [53], (2012) 205 FCR 187 at 201; Elsley v JG Collins Insurance Agencies Limited [1978] 2 SCR 916 at 925-928 (the effect of which is set out in Pearson v HRXHoldings Pty Ltd [2012] FCAFC 111 at [47], (2012) 205 FCR 187 at 198-199).
[36] [1950] HCA 48, (1950) 83 CLR 628.
[37] [1950] HCA 48, (1950) 83 CLR 628 at 636-637.
In Red Bull Australia Pty Ltd v Stacey[38] Rein J noted that one of the rationales for restraint clauses is to prevent any potential conflict between the demands of the new employer or its business and the previous employer.[39] Rein J held that the employer is advantaged by a restraint clause in being able to stop somebody working for a competitor without having to prove exactly what the former employee has done, or is doing, for the competitor.[40]
[38] [2011] NSWSC 1212, (2011) 214 IR 299.
[39] [2011] NSWSC 1212 at [35], (2011) 214 IR 299 at 304. See also the cases discussed at [13] of Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717, (2006) 71 NSWLR 9 and see pages 111-112 of J D Heydon, The Restraint of Trade Doctrine, 3rd ed (2008).
[40] [2011] NSWSC 1212 at [35], (2011) 214 IR 299 at 304.
In Cactus Imaging Pty Ltd v Peters,[41] Brereton J explained an employer’s legitimate interest in the protection of its customer connections. His Honour said:[42]
It is plain that an employer's customer connection is an interest which can support a reasonable restraint of trade: Hitchcock v Coker; Herbert Morris Ltd v Saxelby; Dewes v Fitch; Coote v Sproule; Lindner v Murdock's Garage; and Koops Martin Financial Services Pty Ltd v Reeves. Such a restraint is legitimate if the employee has become, vis-à-vis the client, the “human face” of the business, namely the person who represents the business to the customer — or, as it was put by Hoover J in Arthur Murray Dance Studios of Cleveland Inc v Witter: “The personal relation between the employee and the customer [is] such as to enable the employee to control the customer's business.” (And see Twenty-First Australia Inc v Shade; Koops Martin Financial Services Pty Ltd v Reeves.) While the employer is not entitled to be protected against mere competition by a former employee, the employer is entitled to be protected against unfair competition based on the use by the employee after termination of employment of the customer connection which the employee has built up during the employment — which, because the employee has in effect represented the employer from the customer's perspective during the employment, might at least temporarily appear attached to the employee, but in truth belongs to the employer: Koops Martin Financial Services Pty Ltd v Reeves.
[citations omitted]
[41] [2006] NSWSC 717, (2006) 71 NSWLR 9.
[42] [2006] NSWSC 717 at [25], (2006) 71 NSWLR 9 at 17-18.
Generally, the test of reasonableness for the duration of a non-competition covenant, when it is justified by protection of customer connection, is the period of time required to break the connection with the employee.[43] That reflects the fact that the employer is entitled to protect itself against the exercise of or impact of the connection between the employee and clients of its business.[44]
[43] NE Perry Pty Ltd v Judge [2002] SASC 312 at [28]-[31], [64] and [101], (2002) 84 SASR 86 at 91, 96-97 and 103-104; IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 429.
[44] NE Perry Pty Ltd v Judge [2002] SASC 312 at [30], (2002) 84 SASR 86 at 91.
The rationale for this approach is that the chance of influence occurring from the relationship between the client of the business and the employee, and the strength of the connection between them, will lessen if, during the period of restraint, clients require the provision of services and, because the employee cannot provide them, they are required to obtain them from the employer.[45] By this means, the existing customer connection, and therefore the goodwill of the employer’s business, is protected.
[45] Cf. NE Perry Pty Ltd v Judge [2002] SASC 312 at [64], (2002) 84 SASR 86 at 96-97.
The test has been expressed in other ways, namely: what is the length of time it would take a reasonably competent replacement employee to demonstrate their effectiveness and establish a rapport with the client, displacing the former employee’s connection with the client;[46] or as how long the former employee’s hold over the client is expected to last before weakening.[47] However, these statements have been criticised.
[46] Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [88]; Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 at [36], (2006) 71 NSWLR 9 at 20.
[47] Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 at [36], (2006) 71 NSWLR 9 at 20; Birdanco Nominees Pty Ltd v Money [2012] VSCA 64 at [82], (2012) 36 VR 341 at 358.
In NE Perry Pty Ltd v Judge,[48] Doyle CJ held that the proper test is not the period of time required for a new employee to demonstrate his or her effectiveness to clients, or to establish himself or herself in the eyes of clients, but the period of time required to break the connection between the former employee and the clients with whom he or she dealt.[49] In that case Doyle CJ held that a restraint for two years post termination, applying to a chiropractor employed in a practice in a regional town, was unreasonable and unenforceable. Doyle CJ considered that a 12-month restraint would have been reasonable.[50] Bleby J also rejected the test of the time required for the new employee to demonstrate his or her effectiveness and found the duration of the restraint to be unreasonable and unenforceable.[51] Bleby J said that what is reasonable in the circumstances must be judged, in part, by the time it will take for the connection with and influence of the former employee to ameliorate to the extent that the employer’s interests will not be unduly damaged by the former employee setting up in competition with the former employer.[52] Besanko J also held the duration of the restraint to be unreasonable and unenforceable.[53] He too rejected the effectiveness test. He held that the correct test focusses on how long the restraint needs to be in order to sever the connection between the former employee and the former employer’s clients.[54] He considered in that case a one-year restraint was sufficient to provide adequate protection to the employer.[55]
[48] [2002] SASC 312, (2002) 84 SASR 86.
[49] [2002] SASC 312 at [28]-[30], (2002) 84 SASR 86 at 91.
[50] [2002] SASC 312 at [38], (2002) 84 SASR 86 at 93.
[51] [2002] SASC 312 at [72], (2002) 84 SASR 86 at 98.
[52] [2002] SASC 312 at [63], (2002) 84 SASR 86 at 96.
[53] [2002] SASC 312 at [117]-[119], (2002) 84 SASR 86 at 106.
[54] [2002] SASC 312 at [101]-[103], (2002) 84 SASR 86 at 103-104.
[55] [2002] SASC 312 at [115], (2002) 84 SASR 86 at 106.
In AGA Assistance Australia Pty Ltd v Tokody[56] McMurdo J of the Supreme Court of Queensland considered what a reasonable period of protection might be by reference to the risk of the loss of business to a competitor, by the use of the personal connection with the clients and information about those clients.[57] In that case, Ms Tokody's employment contract with AGA as a senior salesperson contained a 12-month post-employment restraint that prevented her from, among other things, working in Australia in a business substantially similar to, or in competition with, AGA's business. The judge found that Ms Tokody had developed strong relationships with AGA's key clients, such that, at least in some cases, there was a potential for those clients to reconsider their insurance provider as a result of her change in employment.[58] The judge ultimately found that the 12-month restraint was reasonable.[59]
[56] [2012] QSC 176, (2012) 224 IR 219.
[57] [2012] QSC 176 at [35], (2012) 224 IR 219 at 230.
[58] [2012] QSC 176 at [18], (2012) 224 IR 219 at 226.
[59] [2012] QSC 176 at [38], (2012) 224 IR 219 at 231.
Kitto J in Lindner v Murdock's Garage accepted that a general restraint could be reasonable, if the geographical limitation imposed will fairly approximate to a limitation expressed by reference to the employer's customers of whom the employee is likely to acquire special knowledge or with whom the employee is likely to be brought into a personal relation while in the employment.[60]
[60] [1950] HCA 48, (1950) 83 CLR 628 at 655.
On the other hand, a restraint which seeks to apply beyond the geographical area to which the employer’s customers belong, and with whom the employee would be likely to establish a connection, will be found invalid.[61]
[61] [1950] HCA 48, (1950) 83 CLR 628 at 656-657.
The issue is not one that is capable of being settled by direct evidence. An opinion can only be formed on a broad and common sense view of the facts and circumstances relating to the employer’s business, the nature of the employer’s interest to be protected, and the likely effect on this of the employee’s customer connection.[62]
[62] Stenhouse Australia Ltd v Phillips [1974] AC 391 at 402; Birdanco Nominees Pty Ltd v Money [2012] VSCA 64 at [81], (2012) 36 VR 341 at 358.
The witnesses
The applicant called its Chief Executive, Mr Pollock. The respondent gave evidence and called the Managing Director of Cirka, Matthew Bond. I was impressed with each of the witnesses. I considered each was doing his best to assist the Court by giving a full and frank account of relevant events to the best of his recollection. I thought each was prepared to make concessions where appropriate or give answers which might have been considered to be against interest. In this regard I have treated Mr Bond’s interests as being aligned with those of the respondent. That is not to suggest that I thought Mr Bond’s evidence was that of a barracker. His evidence was largely directed to the issue of competition between the applicant and Cirka. The divergence in the evidence of Mr Pollock and the respondent mostly was concerned with the nature of the work being performed by the respondent when he first took up employment with the applicant.
The work performed by the respondent

At issue is whether the respondent was initially employed by the applicant to undertake business development work. The respondent contends that he was employed as a business analyst and initially did not work in business development. In his second affidavit Mr Pollock identified what he described as the responsibilities of the respondent’s role as anticipated at the time of entering the employment contract. They included, inter alia, considering and identifying opportunities for the applicant to tender in respect of existing clients and new business; and preparing and submitting tenders and contract proposals for the same.[63]
[63] Affidavit of David Matthew Pollock deposed 27 August 2020 at [27].
This was consistent with the evidence he gave of a discussion, which the respondent accepted was a job interview, at a café at Glenelg where he and Mr Pollock discussed the requirements of the role as being to head up business development, which would require the respondent to undertake business analyst activities; to conduct presentations; to meet with clients; to fly interstate on a regular basis and to prepare proposals for new business.[64] The respondent accepted it was possible that at this meeting Mr Pollock had said the applicant wanted someone with a greater level of sophistication in the business development role. That would involve not just winning work but being able to analyse and work at a higher level than the existing business development manager role. The applicant agreed that Mr Pollock discussed the need for him to travel to see clients in this new position.[65] I consider that makes it more likely the nature of the position involved business development work.
[64] T 36.12-30.
[65] T 95.20-96.2.
The respondent’s job description in his employment contract with the applicant included in the prescribed performance standards “build new business and client retention”. The respondent gave the following evidence in cross-examination:[66]
[66] T 59.8-37.
Q.Can I direct this to the first year of your employment. One of the things you were doing was winning new business.
A.Yes.
Q.Another thing that you were doing was winning work from existing clients but of an additional nature than the work you were already doing from them.
A.Yes.
Q.Another thing you were trying to do was to break into new sectors where ICS didn't presently have a presence.
A.Yes.
Q.What you were trying to do was to build relationships at a personal level with the existing clients that ICS had.
A.Yes.
Q.What you were trying to do from that was to amongst other things gain a deeper understanding of the specifics of the way in which ICS interacted with particular clients.
A.Yes.
Q.You wanted to understand at a deeper level the nature of the way in which the contract was performed in order to understand its profitability.
A.Yes.
Q.You wanted to understand the ability to upsell or improve the service to particular clients.
A.Yes.
Q.They were all part of the role that you were undertaking from the outset of your role with ICS.
A.Yes.
The respondent also gave evidence that he had prepared a business plan for business development at the outset of his employment with the applicant. He accepted that business development was a key part of his role from the outset.[67]
[67] T 66.17-32.
I find that the respondent was employed initially as a business analyst. However, I am satisfied that his position from the outset also required him to perform work in the nature of business development. Subsequently, that aspect of his work increased to the point where his job title was changed to “Business Development Manager”.
The applicant’s legitimate interests
This is significant for the purpose of identifying what legitimate interest, if any, the applicant had in the non-compete restraint in clause 10.8.1. Central to the applicant’s business was entry into large commercial cleaning contracts with new and existing clients. I am satisfied that for the duration of his employment the respondent was one of the main, if not the main, managerial employee of the applicant responsible for the retention and attraction of its clients. He was, in that sense, the “face” of the business conducted by the applicant. The respondent was employed by the applicant to pursue and establish personal and commercial connections with its clients and potential clients in the interests of the applicant.
The respondent contends that the relationship between him and a client of the applicant must be such as to enable him to control the customer’s business as a personal asset before he could reasonably be the subject of a post-employment, non-compete restraint. The respondent invokes the reasons of the Victorian Court of Appeal in Birdanco Nominees Pty Ltd v Money[68] where Robson AJA, with whom Maxwell P and Redlich JA agreed, cited the extra-curial writings of Dyson Heydon who emphasised that it was not enough for the employee simply to have contact with the customers. It was important that the personal relation between the employer and the customer be such as to enable the employee to control the customer’s business as a personal asset. However, I do not understand the law to require the employee to be in a position to control whether the customer remains or leaves the employer’s business. The test is not so stringent. The employer is entitled to protection against the use of personal knowledge of and influence over its customers, which the employee might acquire in the course of his or her employment, so as to undermine its customer connections. It is against the possibility of its business connection being adversely affected by the use of that personal knowledge and influence that the employer is entitled to be protected. So much is clear from the reasoning of the New South Wales Court of Appeal in Jardin v Metcash Ltd.[69]
[68] [2012] VSCA 64 at [46], (2012) 36 VR 341 at 352.
[69] [2011] NSWCA 409 at [97], (2011) 285 ALR 677 at 696.
Accordingly, I find the applicant had a legitimate interest in protecting its goodwill from the risk that if the respondent was to leave its employment existing clients or potential clients he had been cultivating might follow him to his new employer, in this case Cirka.
The applicant also contends that it has a legitimate interest in protecting its pricing methodology. It submits that this is confidential information. In my view, the restraint in clause 10.8.1 is unnecessary for this purpose. The respondent has agreed to submit to an injunction restraining him from disclosing or using the applicant’s confidential information as defined in an attached schedule. I have set out that definition earlier in these reasons. I am satisfied that the applicant’s pricing methodology is confidential information within the terms of the definition. Accordingly, the applicant’s legitimate interest in protecting this information is adequately protected by the order to which the respondent consents that restrains him from breaching clause 13 of the employment contract.
Is Cirka a competitor of the applicant?
In that context I am satisfied that Cirka is a competitor of the applicant within the meaning of clause 10.8.1 of the employment contract.
There was evidence given by each witness concerning the respective nature of the business conducted by the applicant and Cirka. This was directed to the question of whether they were competitors within the meaning of the restraint provision. Evidence was adduced by the applicant of contracts with its clients which have recently expired or will expire in the period of 12 months following the termination of the respondent’s employment.[70] I accept that the applicant led this evidence for the purposes of demonstrating the reasonableness of the duration of the restraint clause. However, the respondent sought to use this evidence to demonstrate that the applicant and Cirka were not in competition for those contracts. The respondent sought to demonstrate that there was little overlap in the nature of the work being undertaken and sought by each of the applicant and Cirka such that the Court could not be satisfied that they are competitors. This submission focussed on an analysis that dissected the commercial cleaning industry into sectors. I do not accept this submission. The respondent had to concede that the applicant and Cirka are in the same industry, namely the commercial cleaning industry, at what his counsel described as “a macro level”. The respondent’s submission proceeded from the proposition that there was some overlap between the work undertaken and sought by each of them. The respondent called Mr Bond to prove the limited nature of the overlap and that Cirka was not interested in competing in significant sectors in which the applicant had contracts, e.g. mass transit and local government. However, I accept that the evidence of Mr Bond went no higher than that Cirka’s current strategy does not envisage pursuing contracts in the mass transit sector but that if a sufficiently attractive opportunity in that sector presented itself, he might reconsider the strategy. Notwithstanding the respondent’s attempt to confine the work done by each of the applicant and Cirka to specific sectors, I find that they are, and were in November 2016, competitors in the commercial cleaning industry. They both operated within that industry and to that extent are and were competitors. So much was conceded by the respondent in his letter of resignation of 22 June 2020. Even if this approach is erroneous, I am nonetheless satisfied that, as was conceded by the respondent, there is overlap, albeit limited, in the sectors in which each is undertaking or seeking to undertake work.[71]
[70] Affidavit of David Matthew Pollock deposed 27 August 2020 at [42].
[71] T 158.1-5.
Is the restraint reasonable?
For these reasons I find that, in accepting employment with Cirka, the respondent is in breach of clause 10.8.1. At issue is whether clause 10.8.1 is reasonable. I commence with consideration of the extent and duration of the clause. The geographic extent of the restraint is confined to the state of South Australia. The applicant and Cirka operate nationally. The respondent accepts that the geographic extent of the operation of the restraint is reasonable.[72] I find that it is. However, the respondent submits that the duration of the restraint, namely, 12 months, is unreasonable. He submits that given he became the face of the applicant within a matter of weeks, having no background in the commercial cleaning industry, it follows that his replacement could become the face of the applicant in a similar period of time. Accordingly, the 12-month period of the restraint goes beyond what is necessary to protect the applicant’s legitimate interests. I do not accept this submission. First, I consider the evidence establishes that it took the respondent 12 months to develop relationships with most of the applicant’s key clients.[73] Second, I have referred to NE Perry v Judge[74] where the Full Court identified the test as to whether the duration of the restraint is reasonable as the minimum period of time required to break the connection between the former employee and the clients with whom he or she dealt.[75] That cannot be identified readily with precision. To some extent it involves an evaluative judgement. In this case it is informed by the evidence of the length of contracts entered into by the applicant with its customers. These contracts are generally for more than one year. In the circumstances a 12-month restraint is necessary to sever the connection between the respondent and the applicant’s customers with whom he dealt.
[72] T 161.24-25.
[73] T 67.3-6.
[74] [2002] SASC 312, (2002) 84 SASR 86.
[75] NE Perry Pty Ltd v Judge [2002] SASC 312 at [28]-[31], [64] and [101], (2002) 84 SASR 86 at 91, 96-97 and 103-104.
The respondent further submits that the period of the restraint is unreasonable because he has no entitlement to be paid by the applicant during this period. I do not accept this submission. While it is true that in some cases courts have held restraints not to be unreasonable where the employer has paid the former employee during all or most of the duration of the restraint period, it does not follow that the failure of the contractual restraint to include such an obligation on the employer leads to the finding that the restraint is unreasonable. Generally, the existence of an obligation to pay the former employee his or her salary during the period of the restraint reflects the terms of the bargain struck between the parties. It does not reflect a rule that the absence of payment to the former employee during the restraint period renders the restraint unreasonable.
I find that a 12‑month restraint is reasonable to protect the applicant’s legitimate interests.
The respondent submits that the restraint in clause 10.8.1 goes further than is necessary because he consents to an injunction against: soliciting or enticing away clients of the applicant; inducing any employee of the applicant to terminate their employment; and the respondent working directly or indirectly for a client of the applicant. The respondent submits that this is sufficient to protect the applicant’s legitimate interests. I do not accept this submission. The orders to which the respondent submits will not adequately protect the applicant’s interest in existing customers or potential customers moving their business to Cirka by reason of the connections established by the respondent with those customers during the course of his employment with the applicant for the purposes of advancing the applicant’s commercial interests. The mere presence of the respondent at Cirka may be sufficient to attract the applicant’s customers.
That leaves the question of whether the restraint is wider than it needs to be. The restraint is expressed to prohibit an employee from being employed or interested directly or indirectly in any activity, occupation or project which would or might have the effect of promoting or assisting directly or indirectly any competitor of the employer in any way. The applicant submits that the terms of the restraint should be construed in a practical and sensible manner which recognises that the true purpose of the restraint is to prevent a former employee from working for a competitor, whether as an employee or through some other device such as consulting through an incorporated entity. It submits that, consistent with the approach taken in Rentokil by Doyle CJ, the Court should not take an approach to the construction of such provisions that would make it almost impossible to draft a restraint which provides appropriate protection in a range of circumstances which could not be foreseen with any precision by the employer when the contract was entered into. In construing such restraints the Court will not treat them as providing a protection which is more than reasonable, and so hold them void, because there are circumstances, falling within the restraint, that either are unlikely to occur or not within the contemplation of the parties.[76] A similar principle was enunciated by the Full Court of the Federal Court in Pearson v HRX Holdings Pty Ltd.[77]I accept this submission up to a point.
[76] (1995) 66 SASR 301 at 303-304.
[77] [2012] FCAFC 111 at [45], (2012) 205 FCR 187 at 198.
I am bound to follow the reasoning of Doyle CJ in Rentokil. In any event, I find the reasoning persuasive. The Court should not be the destroyer of bargains. At issue here is not whether the restraint is wider than is necessary because the restraint extends to circumstances unlikely to occur or not within the contemplation of the parties, but rather whether the clause extends beyond the minimum necessary to protect the employer’s legitimate interests. In my view, clause 10.8.1 is cast in wider terms than is necessary to protect the applicant’s legitimate interests because it seeks to extend beyond working in or for a competitor of the applicant. It purports to extend to being “interested directly or indirectly in any activity, occupation or project which … might have the effect of promoting or assisting … [even] indirectly any competitor of the [applicant] in any way”. That would extend to being a shareholder in a competitor or having the respondent’s superannuation fund invest in a competitor. That would be unreasonable. I accept that a restraint of this width was not intended by the parties when entering into the covenant. However, the parties have agreed that unenforceable provisions can be severed[78] and Rentokil is authority for the proposition that if part of an agreement is invalid or unenforceable that part may be severed from the balance of the agreement or disregarded.[79] In the context of these cases that approach is sometimes described as the blue pencil rule. In this case, in order to hold the parties to the bargain they struck I would delete from clause 10.8.1 the words “or interested” and “any activity, occupation or project which would or might have the effect of promoting or assisting directly or indirectly” so that the clause would read:
10.8.1be employed directly or indirectly in any competitor of the Employer in any way;
[78] Clause 16 of the respondent’s employment agreement. See the affidavit of David Matthew Pollock deposed 13 August 2020 exhibit DP1.
[79] (1995) 66 SASR 301 at 306.
That restraint is not unreasonable.
The respondent’s alternative submission
Finally, I do not accept the respondent’s alternative submission that the work to be performed by him with Cirka is sufficiently different from the role the subject of the restraint, that there is no breach of clause 10.8.1. That submission misses the point of the rationale for a non-compete restraint to protect an employer’s goodwill from being damaged by the use of a former employee’s customer connections. That risk exists irrespective of the nature of the role to be performed by the respondent with Cirka. The threat to the employer’s goodwill can exist even where the former employee is entirely passive. He or she need not do anything to exploit their customer connections, but the employer’s legitimate interest can nonetheless be damaged because of those customer connections by customers following the former employee to his or her new employment. In any event, there is evidence that business development is to form an integral part of the respondent’s employment with Cirka.[80]
[80] Letter of resignation 22 June 2020 and email from the respondent to Mr Pollock of same date. See the affidavit of David Matthew Pollock deposed 13 August 2020 at [15].
Conclusion
For these reasons I find that the restraint is not unreasonable. It should be enforced. The applicant is entitled to the injunctive relief. However, for the reasons set out above, the terms of the orders sought on its revised application are too wide. I direct the applicant to bring into Court minutes of order that reflect these reasons.
I would hear the parties as to costs.