The Burton Corporation

The Supreme Court of Victoria heard a dispute between The Burton Corporation and a former employee, Mr. David Smith. The Corporation sought to enforce a restraint of trade clause contained within Mr. Smith's employment contract, which prohibited him from engaging in competitive activities for a period of 12 months following his termination. Mr. Smith had resigned from his position and subsequently commenced employment with a direct competitor of The Burton Corporation.

The central legal issue before the Court was whether the restraint of trade clause was reasonable and therefore enforceable. Specifically, the Court had to consider if the duration and geographical scope of the restraint were no wider than necessary to protect the legitimate business interests of The Burton Corporation, such as its confidential information and customer connections. The Court also had to assess whether the clause imposed an undue burden on Mr. Smith's ability to earn a living.

In its reasoning, the Court applied established principles of contract law concerning restraints of trade. It acknowledged that such clauses are prima facie void as being contrary to public policy, but can be upheld if they are demonstrated to be reasonable. The Court examined the nature of Mr. Smith's role within The Burton Corporation, the specific confidential information he had access to, and the extent of his client relationships. After considering these factors, the Court found that the 12-month duration and the specified geographical area were wider than reasonably necessary to protect the Corporation's legitimate interests and that the clause placed an unreasonable restriction on Mr. Smith's future employment.

Consequently, the Court found the restraint of trade clause to be unenforceable and dismissed The Burton Corporation's application for an injunction.