Question

Akshita and Underground Solutions Pty LtdAkshita runs a construction company called Underground SolutionsPty Ltd (US) that specialises in tunneling.

Every employment contract at US contains the following clause:

"No employee can use the same skills employed at Underground Solutions Pty Ltd at any other firm operating in Australia for ten years after finishing a role at Underground Solutions Pty Ltd."Two of Akshita's employees, Lin and Dimitri, decide to leave the company and hand in their notice. Akshita learns that Lin has accepted a new job at Grow Tall Pty Ltd (GT), a construction company that specializes in designing and building new parks and public spaces. Dimitri, meanwhile, has accepted an offer at Long Way Down Pty Ltd (LWD), a competing tunneling firm. US, GT, and LWD all operate across Australia and have local, state, and federal governments as their primary clients.

Akshita wishes to enforce the above clause against her former employees.

Akshita asks you for advice on whether she can enforce the above clause against her former employees. She also asks how she might structure similar clauses in the future to prevent them being challenge



Please using IRAC to solve this case

Answer 1

Issue: Employment contract at US stipulates that no employee can use the same skills employed at Underground Solutions Pty Ltd at any other firm operating in Australia for ten years after finishing a role at Underground Solutions Pty Ltd. In spite of this clause, two of its US employees joined competing companies after putting in their papers. US now seeks to bring legal action against these two employees for enforcing the contract.

Rule: Agreements in restraint are void.The only exception is in the case of sale of goodwill or technology or know-how to the plaintiff, where a consideration has been paid for the same, and the plaintiff can rightfully retrain the seller from using the same right during a stipulated period.

Analysis: There is a clause in the employment contract of the company, a construction company, which restrains an employee from use of the same skills at any other firm in Australia for ten years. For a contract to be enforceable, one of the essential elements is consideration. What was the consideration furnished by US to the employees for them not to use the same skills in any other firm in Australia for ten years? There does not seem to be a separate consideration for the promise. Hence this clause is void.

Conclusion : In view of the above, Akshita would not be able to enforce the clause against her former employees. There is lack of consideration for one thing, which renders the clause unenforceable, plus the clause is ambiguous in nature, as it says 'at any other firm operating in Australia'. Uncertain agreements too are not enforceable. Further, the amount of loss suffered by Akshita as a result of the two employees using their skills in other firms too is not clearly ascertainable.

In future, the company's employment contract should state the nature and amount of consideration involved for the employees to give the promise, liquidated damages for breach of the restraining clause, and be more specific as to the types of firms covered by the clause.