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As an employer and business owner, protecting your legitimate business interests is a concern when an employee’s employment comes to an end. One of the main ways of protecting this legitimate business interest is to have restraint clauses within the employment contract. However, are restraint clauses enforceable if it is the employer that repudiates the contract.
Post-employment restraints often expressly state that they continue to apply after termination regardless of the reason for the termination. Because such an express provision is included in the employment contract, on a contract construction position, this would mean that the restraint clause would be enforceable even if the employer repudiates the contract.
However, a recent Victorian Supreme Court decision held that “an employee’s post-employment restraint of trade obligations do not survive the termination of the employment contract where termination is effected by the employee accepting the employer’s repudiation of the contract”.
This decision was due to either:
- An employer is not entitled to obtain equitable relief to enforce the restraints in circumstances where it had not performed its part of the contract; or
- Where the circumstances are due to the employer’s repudiation they court no longer be considered reasonably necessary to protect their legitimate business interests.
Conclusion
Employer’s must be aware that if they repudiate the employment contract, they are unable to rely on any restraint clauses either expressly stated or implied in the employment contract.
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