As a recent NSW Supreme Court case shows, restraining former employees from soliciting clients is an issue that doesn’t disappear after the leaving party.

After watching some of broker Peter Hanna’s former OAMPS clients decamp to his new employer, Strathearn, OAMPS sued him and won a restraining order banning him from soliciting its clients for one year.

OAMPS took the 30-year insurance industry veteran to the NSW Supreme Court to enforce confidentiality obligations and restraint covenants in his employment contract. And he is unlikely to be the last broker to face an action of this kind.

Mr Hanna told the court he believed the restraint deed permitted him to deal with former OAMPS clients, if not solicit their business. But Justice David Hammerschlag came down on the side of OAMPS.

John Edmond, a partner at Allens Arthur Robinson lawyers, told insuranceNEWS.com.au the Supreme Court ruling is a “common sense judgement”.

Mr Edmond says there is no such thing as a typical restraint case, but this most recent example has some good guidance for employers and brokers on how to conduct themselves.

“Mr Hanna’s employment contract with OAMPS included a post-employment restraint,” he said. “This prohibited him from canvassing, soliciting or dealing with any OAMPS client with which he had dealings during the previous two years of his employment,” he said.

The restraint periods in Mr Hanna’s contract were 15, 13 and 12 months and the restraint areas were Australia, NSW and Sydney.

The restraint period and restraint area were drafted as cascading and cumulative clauses, meaning they were intended to work together, with the widest restraint being Australia-wide for 15 months and the narrowest in Sydney for 12 months.

“The court rejected Mr Hanna’s argument that the restraint was void for uncertainty because it included cascading restraint areas and restraint periods,” Mr Edmond said.

“The court decided that the restraint was drafted effectively and had a cumulative effect. It bound him to nine separate restraints.”

Mr Hanna argued that the restraint was unreasonably broad and shouldn’t be enforced, but the court noted that an employer’s customer connection can support a reasonable restraint of trade if an employee has become the human face of a business to a customer.

Time to sever the relationship between the former employee and the clients he served is regarded as a reasonable time for the restraint; in Mr Hanna’s case the court decided on 12 months.

Mr Edmond says this time scale is reasonable.

“In this case, 12 months was reasonable because most of the clients Mr Hanna had contact with had policies that expired every 12 months and the renewal dates were spread throughout the year,” he said.

“The 12-month restraint was necessary to give OAMPS an opportunity to cement its connection with its existing clients without interference from Mr Hanna.”

Going forward, Mr Edmond says future cases will arise but most restraint disputes will continue to be decided before they get to court.

His advice for brokers is simple.

“It might sound very, very trite, but know what you’re signing up to at the marriage stage and that it’s something you’re happy with.”

And he says employers must bear in mind that if a dispute comes to court the contract will be measured against what is seen to be “reasonable”.

“Employers can put in [the contract] what they like, but at the end of the day the court will ask what’s reasonable,” he said.

Lisa Berton, a partner at Kemp Strang Lawyers, told insuranceNEWS.com.au restraints of trade disputes are often seen as murky waters.

“Determining what is reasonable will depend on an analysis of the particular circumstances and the terms of the restraint provision,” she said. “If a restraint is not well drafted this further muddies the issue.”

“These cases commonly arise where employees develop strong personal connections with clients and customers. Also there is often a general misconception by a lot of employees that restraints are not enforceable.

“Restraints are often not clearly drafted so there is a need for judicial interpretation. People also often have differing views of what is reasonable.”

But Ms Berton advised against tougher legislation, which say says, “may discourage competition”.