1 min read

Gardening leave extending the operation of a restraint clause

The Case

DP World Sydney Ltd v Guy and Anor (2016)

Mr Guy, the general manager of DP World Sydney (DP World), resigned from his employment and was immediately placed on gardening leave for 3 months. Mr Guy thereafter commenced employment with a competitor, Asciano Executive Services Pty Ltd (Asciano).

Mr Guy had a written employment contract with DP World that prevented him from working for a competitor for 3 months following his employment termination. Mr Guy argued that the restraint period commenced when he was placed on gardening leave. DP World argued the restraint commenced when Mr Guy’s employment was terminated at the end of the gardening leave period.

DP World commenced proceedings in the Supreme Court of NSW against Asciano and Mr Guy to stop Mr Guy working at Asciano until the expiry of his restraint period.

The Verdict

The judge granted an injunction, finding that DP World was entitled to exercise the gardening leave clause and restraint clause in Mr Guy’s contract, preventing him from working with Asciano for 6 months, i.e. 3 months of gardening leave, then 3 months of a restraint period.

The judge found the 6-month restraint period was reasonable given:

  • Mr Guy had a senior role;
  • he held significant important relationships with DP World’s clients;
  • he had access to important confidential information and trade secrets that he could use to DP World’s detriment;
  • DP World had few competitors, which enabled Mr Guy to work elsewhere; and
  • DP World had offered to pay Mr Guy 3 months’ salary during the 3-month restraint period.

DP World’s 3-month delay in bringing the injunction against Mr Guy was held not to be substantial enough to deny the injunction.

The Lesson

When preparing employment contracts for senior employees, it is important to consider including a reasonable restraint period to protect your legitimate business interests, such as access to confidential information. You may also wish to include a gardening leave period.

While both clauses can be used, the courts will take into consideration the total period the employee is kept out of the market when determining whether the duration is reasonable. For senior executives such as Mr Guy, a restraint period (inclusive of any gardening leave period) of 6 months may be reasonable.

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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