A real estate agency has failed in its bid for an injunction based on an employment contract non-compete clause to restrain a sales manager and five salespeople from working with a competitor.
SRE – a McGrath franchisee with several branches in Southern Sydney and in the Illawarra – terminated its regional sales manager from his position in June 2021.
The manager – Joshua Kersten – was followed out the door in August by three senior sales agents and two sales associates.
Kersten obtained work in a similar role with Di Jones Property, a real estate chain based at Bowral whose area of operation was to the west of that where SRE was active.
His five former sales people also took up work with DJP who promptly announced it was extending its operations into the Illawarra and would open an office there in March 2022 with Kersten as sales manager for the entire business.
The group of five deny they were recruited by Kersten saying they left SRE because they were concerned he had been “treated shabbily” and were worried the same might happen to them.
SRE seeks court orders – in accordance with the terms of their employment agreements – stopping the six former staff from working for DJP or limiting the work they can perform in their new employment.
The matter came before Justice Guy Parker in the NSW Supreme Court in September to hear SRE’s argument for the grant of temporary injunctions pending a final determination of the issues at trial.
At contest was the former personnel’s obligation not to “carry on or be engaged, concerned, interested directly or indirectly” in any imaginable capacity work for a “competitor” on termination of their employment with the agency.
Any business providing “real estate agency services” within a specified distance – either 15 km or 7.5 km – from the SRE office in Wollongong, was deemed a “competitor”.
The judge accepted that the five sales staff were employed by DJP for their knowledge of real estate in the Wollongong area and would be an asset to the office to be opened there.
However the “lack of clarity” of the contractual terminology and the fact that the clause “extends far beyond what is reasonably necessary” to protect SRE from unfair competition meant – in Justice Parker’s view – the restraint clause was potentially unenforceable.
And even with the “carve out” that SRE offered to significantly read down its operation – as is permitted in NSW jurisprudence – he thought it unworkable to injunct all employment activities relating to all properties within a particular area.
He went on to observe that – if SRE is ultimately allowed by the trial court to enforce the restraint or a read down version of it – “it should be relatively simple” to identify infringing transactions and to calculate the damages it claimed.
Neither could an injunction be justified on the basis of the potential misuse of confidential information as – having received undertakings from the defendants not to make use of downloaded customer lists or any confidential information received – an injunction could only be justified if such information was the sort that the former employee “would be practically unable to put out of his or her head”.
Only Kersten might have had such sensitive information but it was clear that whatever he had seen, he had forgotten. Even if he hadn’t, it was hard to see how “having viewed financial statements and budgets would enable Kersten to engage in unfair competition against SRE,” Justice Parker observed.
The injunction was also refused on a “balance of convenience” basis given the serious risk the defendants will lose their employment and be exposed to financial prejudice.
SRE also sought a temporary injunction to prevent the defendants from promoting their engagement and work with DJP on social media but that wasn’t pursued at the hearing.
All six gave undertakings to the court not to engage with SRE customers pending the outcome of the ultimate trial.
The restraint clauses were in substantially the same terms as those Justice Parker had ruled on in September 2020 in relation to a McGrath franchisee on the NSW Central Coast.
Temporary injunctions were refused on that occasion also with His Honour noting – as he did in the SRE case – that the case for enforceability of the restraint by the McGrath franchisee “is a weak one”.