Wrongful Dismissal May Impact Post-Employment Restraints

In Crowe Horwath (Aust) Pty Ltd v Loone (2017), the Victorian Court of Appeal confirmed that a restraint clause is not enforceable against an employee whose employment ends by the employer’s wrongful conduct.

The employee was employed as an accountant, more specifically as a “Managing Principal”.

The employment contract included a term whereby the employer could require the employee to occupy another position, either on a temporary or permanent basis, if it had consulted with employee about the change and the other position was at least equivalent in status to, and had an equivalent level of remuneration. Further, the employee was eligible to receive a discretionary bonus each year by consideration of various performance parameters. (the “Terms”).

The contract also provided for post-employment restraints. Often, we will see a restraint for a period of time (i.e. Restraint Period) in a defined territory (i.e. Restraint Area).

In this case, the Court ruled the company had committed repudiatory conduct by acting inconsistently with the Terms. As a result, the employee was entitled to and had relied upon the repudiation in ending his employment contract. Therefore, he was no longer bound by any post-employment restraint clauses. As a result, the validity of the restraint clauses need not be considered.

Written by Michael Turnell