Enforcing international restraints
The CaseNaiad Dynamics US Ink v Vidakovic (2017)
Naiad Dynamics US Ink (Naiad) is a company incorporated in Connecticut, USA. Naiad designs, engineers, manufactures, installs and sells maritime stabilisation, manoeuvre and ride control systems in the global luxury yacht, commercial shipping and military shipping markets.
Until January 2017, Dr Steven Vidakovic, an Australian, was Naiad’s Global Sales Director. Dr Vidakovic resigned and returned to Perth to work as the Global Sales Manager for a competitor of Naiad.
The contract of employment between Naiad and Dr Vidakovic included a non-compete clause. This prohibited Dr Vidakovic from working with a competitor of Naiad for a period of 24 months in specific US states and other countries, including Australia. Naiad sought to enforce the contract and applied for an interlocutory injunction from the Western Australian Supreme Court, restraining Dr Vidakovic from working for Naiad’s competitor.
Dr Vidakovic argued:
- the non-compete clause was unreasonable and therefore unenforceable; and
- the non-solicitation clause in the contract was sufficient to protect Naiad’s legitimate business interests.
In hearing the case, it was established that the law of Connecticut governed the contract and needed to be applied to decide the enforceability of the non-compete clause. However, while the restraint needed to be considered reasonable in accordance with Connecticut law, the question of whether an injunction was necessary needed to be assessed in accordance with the laws of Western Australia.
In applying Connecticut law, the Supreme Court granted the interlocutory injunction, indicating it was arguably reasonable in the circumstances given:
- the usual time between receiving a request to tender and securing an order arguably made a 2-year restriction reasonable;
- Naiad actively sells to customers in Australia;
- as the Global Sales Manager, Dr Vidakovic would personally interact with customers, therefore a restriction that applies to Australia was arguably reasonable;
- Dr Vidakovic’s knowledge of Naiad’s customer list and his connection with Naiad’s customers, was a potential threat to Naiad’s business, which Naiad was entitled to protect for a reasonable period of time; and
- the evidence did not establish that Dr Vidakovic was prevented from supporting himself and his family in any other employment should the restriction be enforced.
The Supreme Court granted the injunction indicating ‘there is a prima facie case that it is enforceable’, and that in the circumstances Dr Vidakovic ‘should be held to his bargain unless and until it is determined at trial that the restraint is unenforceable’.
Lessons for You
This case gives comfort to international employers seeking to enforce restraints where they have businesses and competitors in Australia where they can demonstrate:
- the restraint clause is reasonable and appropriate; and
- a detrimental impact on their business if the restraint is not enforced.
If an employer is seeking to have a restraint clause operate internationally, it is prudent to obtain multi-jurisdictional advice at the time of drafting the clause. Detailed and careful drafting will increase the chances of the restraint clause being enforced.
This decision confirms that the existence of a non-solicit clause does necessarily mean that a non-compete clause will be found to be unreasonably restrictive.
While the matter is not finalised, obtaining an interlocutory injunction is a very important step in protecting an employer’s legitimate business interests.
Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.
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