Every move you make – court orders employee to keep electronic records as the price of obtaining relief from post-employment restraint

In post-employment restraint cases, a former employee who wishes to escape the full width of the restraint will often give undertakings to comply with part of the restraint.  For example, where a former employer seeks to enforce both non-compete and non-solicitation obligations, the former employee may give an undertaking to comply with the non-solicitation provisions.  This means that if the former employer tries to enforce the non-compete, and fails, the former employer will end up paying costs.

However, the former employer will often question the value of an undertaking (especially if the undertaking is given only to the former employer, rather than to the Court).  If there is evidence that the former employee has been dishonest in the past,  that may lead to justifiable scepticism as to whether an undertaking can be relied upon.  Even in the absence of dishonesty, it may be just too difficult for the former employer to know whether the former employee is holding up their end of the bargain.

A novel means of dealing with this difficulty was deployed in the Supreme Court of New South Wales last week.  The Court declined, on an application for an interlocutory injunction, to restrain an employee from commencing work for a competitor of the former employer.  The undertakings given by the former employee were a important part of the Court’s decision in this regard, and to ensure that the undertakings were complied with, the Court made the following orders:

4)                So to as facilitate the monitoring and verification at any final hearing of the defendants’ [that is, the former employee and the new employer] compliance with the undertakings given in (2) above, order that each of the defendants is required until any final hearing in these proceedings to:

(a)                retain in a reasonably accessible form electronic copies of all documents:

(i)                  generated by the first defendant [the employee];

(ii)                 received by the first defendant; or

(iii)               created by the first defendant

in the course of his employment by [the new employer], including internal and external email and other correspondence, sales data, credit card statements, expense and travel documents; and

(b)                provide to the lawyers for the plaintiff (upon their undertaking to keep such information confidential and not to use such information other than with the prior leave of the Court), email addresses, mobile phone numbers, land lines, and social media account numbers used by the first defendant during that period for business or other purposes.

Apart form the difficulty of identifying what “social media account numbers” might be, orders in this form will be worth considering in nearly all post-employment restraint cases.  Of course, before the former employee (and the prospective new employer) can offer such orders as the price of allowing the employee to commence the new job, it will be necessary to ensure that suitable technical and other processes are in place to capture all of the information (for example, ensuring that there is a process for capturing all handwritten documents generated by the employee).  It may also be be necessary to carve out certain documents from the orders, for example, documents which are protected by legal privilege, if it is likely that the employee will have access to privileged documents. Eternal vigilance is said to be the price of liberty, and in this case, the question will be whether eternal vigilance in relation to the creation of documents is a reasonable price to pay for the liberty to commence work with the new employer.

As the former employer, obtaining an order of this kind is likely to focus the attention of both the former employee, and the new employer, on compliance with the undertakings.  That may not be as good as preventing the employee from commencing work, but it will often be the next best thing.

Restraint of trade cases involve the need to weigh up the interests of the former employer, the former employee, the new employer and ultimately (at east in some cases), the public.  This decision shows that the range of conditions which the Court can impose to balance those interests is extensive – which, in turn, points to the importance for each party to a post-employment restraint case of being able to identify to the Court what that party’s interests are, and how the Court should protect them.

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April 17
Employment Law