Woolworths v Banks [2007] NSWSC 45
Restraint of Trade – February 2007
The Supreme Court of New South Wales recently made a significant decision in relation to restraint of trade. In the case of Woolworths v Banks, Woolworths were attempting to enforce a restraint of trade clause in Mr Banks’ written service agreement.
Background to the case
Since 1993, Mr Banks had been employed by Woolworths in numerous positions for over fourteen years. On the 17th of November 2006 he gave notice of his resignation and on the 12th January, ended his employment at Woolworths. Mr Banks was employed on the basis of a written service agreement, which expired on the 18th August 2006. Mr Banks and Woolworths then entered into an additional written service agreement on the 28th August 2006. This agreement defined the terms of his employment and his position as a senior regional property manager. In late December 2006 Mr Banks was given a letter from Woolworths with a cheque for $71 002.76, six months of Mr
Banks’ net entitlements. The letter stated that Mr Banks would be bound by clause 10, the restraint of trade clause, in his written service agreement. On the 15th January, Mr Banks began employment with Myer Limited in the role of general manager, property. As a result, Woolworths attempted to enforce its restraint of trade clause.
Restraint of Trade
Justice McDougall investigated in which circumstances restraints of trade are valid. He examined Kearney v Crepaldi [2006]. This case found that a party seeking to enforce a restraint of trade must show that the restraint is no wider than is reasonably necessary to protect its legitimate interests. He also examined Hartleys Ltd v Martin [2002], where Gillard J stated ‘it is well-recognised that an employer is entitled to impose a restrictive covenant to reasonably protect his business against ex-employees taking customers with them to a business in competition with their former employer.’ Additionally, Justice McDougall examined the cases of Lindner v Murdoch’s Garage
(1950) and Herbert Morris Ltd v Saxelby [1916]. At the conclusion of this examination, he found that restraints of trade were valid where they were ‘reasonably necessary to prevent disclosure of confidential information garnered by the former employee in the course of his or her former employment, or the exploitation of a connection built up by that employee with the former employer’s customers in the course of that employment.’
Woolworths attempted to enforce the restraint of trade clause, by claiming that:
⇒ Myer was a competitive business, and
⇒ Mr Banks was in possession of confidential information.
Competitive Business
Woolworths claimed that Myer was a ‘competitive business’ as defined in clause 10(d)(ii) of the service agreement. It alleged that this
occurred in two main ways:
⇒ Woolworths held that its discount department store Big W competed with Myer, in that it sold goods which overlapped in various areas.
⇒ Additionally, Woolworths believed that it was in competition with Myer for a limited amount of retail space available.
Restraint of Trade Clauses in
Employment Contracts.
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In spite of this, Mr Ralph Robert Kemmler, Woolworths’ General Manager – Property Operations, made a clear distinction in his affidavit. While he acknowledged that there is some competition in the retail property market in Australia, he distinguished between department stores such as Myer and David Jones, discount department stores such as Big W, supermarkets, such as Woolworths, chain operators specialising in particular retail commodities such as Bing Lee or Retra Vision and smaller specialty retail stores. He stated that retailers require different
space depending on the type of retail operations they conduct. Department stores customarily require the largest floor space, with smaller specialty retail stores requiring the least.
Consequently, Justice McDougall concluded that both Big W and Myer’s needs were somewhat dissimilar and stated that Woolworths’ case on this point was not strong. He claimed that there was “no evidence that, as at August 2006, Woolworths and Myer were, or were perceived aslikely to be, in competition for the same ‘boxes’ of retail space,” and “there is no evidence that…the traditional model to which Mr Kemmler
referred in paragraph 17 of his affidavit…was perceived as likely to change.”
Confidential Information
Woolworths alleged that in the course of his employment, Mr Banks was privy to confidential information that would be of use to Myer. They used the Court of Appeal case of Woolworths Limited v Mark Konrad Olson [2004] to put their argument forward. Woolworths believed that a restraint of trade clause may be enforced to protect the employer’s legitimate interest in its confidential information; and may be so enforced notwithstanding the fact that there are other protections – such as clause 5- for that information. However, Justice McDougall believed that Olson was a case where there was a very strong basis for believing that the respondent had misused, and unless restrained might continue to misuse, confidential information of Woolworths.
The question was posed as to whether Mr Banks was actually in possession of any confidential information concerning Woolworths. It was found that Mr Banks’ knowledge of confidential information was associated with Woolworths’ supermarket business. This could, to some extent, also be related to Big W. However, Justice McDougall found that given the differences already established between the two businesses, the likelihood was that the information would be of no or limited interest to Myer.
Hence, the Court found in favour of Mr Banks and rejected Woolworths’ claim for an interlocutory injunction.
Conclusion
This case has further defined the boundaries on restraint of trade clauses in agreements. It identified what a ‘competitive business’ is and clearly labels the difference between department stores, discount departments, supermarkets, and smaller specialty retail stores. Additionally, it has further been taken into account, whether one party is in possession of confidential information that would be relevant, or of any interest to another party, when deciding whether or not to enforce a restraint of trade clause.