New South Wales Supreme Court CITATION : Allied Express Transport Pty Ltd v Mears [2010] NSWSC 1112 HEARING DATE(S) : 14 September 2010 JUDGMENT DATE : 17 September 2010 JUDGMENT OF : Bryson AJ at 1 DECISION : 1. I note and accept the undertaking of the defendant to the court set out in para (57) of his affidavit of 7 September 2010 and direct that he produce his record of communications for inspection by the plaintiff if required to do so after 29 January 2011. 2. The plaintiff's application for an interlocutory injunction is dismissed with costs. CATCHWORDS : CONTRACT - restraint of trade - contract of employment contained non-recruitment covenant (anti-poaching) restraining engaging or soliciting staff for 12 months after termination of employment - application for interlocutory injunction - enforceability of restraint on engaging or soliciting staff - prima facie case of soliciting one staff member who had made initial approach to defendant - on the evidence there was faint ground for apprehension of future breaches - interlocutory injunction refused. LEGISLATION CITED : Not applicable CATEGORY : Procedural and other rulings Aussie Home Loans v X Inc Services [2005] NSWSC 285 Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 CASES CITED : Cactus Imaging Pty Limited v Peters [2006] NSWSC 717 Empirnall Holdings Pty Limited v Machon Paull Partners Pty Limited (1988) 14 NSWLR 523 John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 Waldorf Apartment Hotel The Entrance v Owners Corporation Strata Plan 71623 (2010) NSWCA 226 PARTIES : Allied Express Transport Pty Limited Christopher Mears FILE NUMBER(S) : SC 2010/291323 COUNSEL : Pl: Mr Bors Def: Mr Moir SOLICITORS : Pl: Hassett Dixon Def: Rhodes Legal IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON AJ Friday 17 September 2010 SC2010/291323 ALLIED EXPRESS TRANSPORT PTY LIMITED v Christopher MEARS JUDGMENT 1 HIS HONOUR: The plaintiff claims an interlocutory order restraining the defendant from dealings with any employee or any contract driver of the plaintiff. The plaintiff proffers an undertaking as to damages in support of its application. 2 The defendant was formerly employed by the plaintiff. At one time the defendant was National Operations Manager but he did not find this suitable and continued in employment at a lower classification and salary. He left that employment on 29 January 2010. The plaintiff claims that he is bound by restraints on his activity in his new employment with VIP Transport. 3 The defendant was employed, his classification being radio operator, under a letter of 28 October 2008 which regulated the employment contract and imposed restraints on his activities. The restraint on which this application is based is in these terms: "(b) During the term of the employment and for a period of twelve (12) months from the date of termination of your employment, you must not, without the [Company's] prior written authorisation, either on your own account or for any other person, firm or company, engage, solicit, interfere with or endeavour to entice away from the company any employee of or contractor of the Company." There are other restraints but this application was not based on them. 4 On a reasonable reading, restraint could only be understood to relate to people who are members of staff while the defendant was himself employed. There could be no reason for a restraint relating to people who joined the staff later. 5 This letter was signed by Mr John Richardson, Manager, Human Resources and the defendant signed his acceptance on 28 October 2008. 6 Another letter of employment is in evidence dated 9 September 2009 relating to employment in the position classified as "Radio Room Manager" effective 7 September 2009. This letter contains restrictions on activities in substantially the same terms. However, the defendant did not sign the acceptance which the form of the letter provided. He declined to work as radio room manager and continued as an operator but decided to leave and his employment ended on 29 January 2010. 7 There is conflicting evidence about what the defendant said about the second letter. The allegation supported by Mr Richardson's evidence is that he said to the effect that he would take it home, look it over in more detail, sign it and return it but he never did so and that he never said in terms that he did not agree. The defendant says that he expressly declined to be manager and did not become the manager although he received increased remuneration. 8 In my appraisal, the plaintiff's prospects of establishing that the restriction of activities in para (b) was part of the defendant's contract of employment up to the time he left work are quite strong, even though it is open to debate whether he is bound by the first or the second letter. Nothing happened to terminate the earlier contract if the second contract did not take effect. 9 The proposition that parties are contractually bound by a document which was left unsigned, although they conformed with it, can only be decided on a very detailed address to the facts, see Brogden v Metropolitan Railway Co (1877) 2 App Cas 666, Empirnall Holdings Pty Limited v Machon Paull Partners Pty Limited (1988) 14 NSWLR 523 and Waldorf Apartment Hotel The Entrance v Owners Corporation Strata Plan 71623 (2010) NSWCA 226 at [65-67], Macfarlan JA. 10 The defendant contends that the restraint is not enforceable having regard to the common law on restraint of trade, that restraints on soliciting employees, which could be called non-recruitment or anti-poaching covenants are invalid, alternatively that the period of twelve months was not reasonable in the circumstances. 11 The enforceability of non-recruitment covenants was considered by Brereton J in Cactus Imaging Pty Limited v Peters [2006] NSWSC 717. His Honour made an extensive survey of restraint of trade law in relation to former employees and concluded after that review at [52]: "The cases appear to have accepted that such covenants are within the restraint of trade doctrine." 12 Brereton J's citations show that the employer's interest in maintaining a stable workforce has been treated as a legitimate interest for justifying a restraint of trade. There are as always questions of reasonableness. 13 In Aussie Home Loans v X Inc Services [2005] NSWSC 285, White J took a somewhat narrower view of the circumstances in which protection of the employer's employment relationship with others is justified. 14 In my opinion, it is well established in New South Wales that non-recruitment covenants may be enforceable, notwithstanding that they operate in restraint of trade. An employer has an interest in maintaining a stable, trained workforce. See Cactus Imaging at [43-59], John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 at [32]. 15 The tests of reasonableness in the public interest and in the interests of the parties are to be brought to bear on the terms and operation of each such restraint. Restraints which have been upheld usually relate to active intervention in the employment relationship, to soliciting or enticing staff. The stability or volatility of employment patterns in the relevant industry and in the particular employer's service should be considered and may be such that the restraint is not warranted. 16 In the plaintiff's case, most of the staff are contract drivers, not employees. The majority of them own the vehicles which they drive and the plaintiff engages drivers with their vehicles on a subcontract basis in its business of providing courier and transport services all over Australia, with offices in every state except Tasmania. There are about 750 vehicles in its fleet. The subcontract drivers are men of business and they probably bring a fairly acute consciousness of their interests to bear on decisions about whom they contract for and whether they continue a business association. To my mind the independent characteristics of contract drivers and the volatility and short terms of their relationships with the plaintiff tend, if anything, to enhance the reasonableness of the restraint. 17 The defendant, employed as a radio operator and as radio room manager was very closely involved in communication with contract drivers. His employment would lead to a high degree of personal contact, knowledge and familiarity and tend to enhance his influence in later recruitment. 18 The period of the restraint is open to consideration. See Aussie Home Loans v X Inc Services, White J, where it was found that a restraint of 12 months was excessive for a mortgage financier which retained loan writers. The defendant in the radio room had relatively intense contact, voice contact with driver contractors. He knew contractors' work preferences and payment requirements. Twelve months protection against his personal influence is unlikely to be found to be excessive. 19 Notwithstanding that the outcome is far from foregone, I am of the view that the plaintiff's prospects of showing that the restraint is enforceable are quite high. I see no real difficulty in the duration of the restraint being for twelve months. Any shorter restraint would be unlikely to have any real protective effect in the circumstances of this industry. After twelve months, the force of the connection built up during the employment should begin to fade but for twelve months or less, considerations in favour of restricting the former employee's economic freedom are outweighed by the employer's interest in preserving workforce stability. 20 It will be seen that clause (b) restrains the defendant from engaging a contractor during the period referred to. Simply restraining engagement has not been upheld in the case law as far as I am aware. The restraint on engaging staff is indifferent to active intervention or initiation of contact. 21 The plaintiff's case will have to face questions of severance as to terms and as to period. 22 The remaining restraints against soliciting, interfering with or endeavouring to entice away staff are of relatively familiar kinds. The restraints which have been upheld generally deal with active intervention rather than simply accepting and entering into a contractual relationship with staff members. Unless the former employee is restrained from acting in some relatively intervening way, I do not think that the restraint could be justified. 23 Whether there is solicitation depends on what in details happens in the negotiations. Soliciting is not simply a question of who made the first approach. A simple restraint on engaging staff does not appear to be defensible. Employees have their economic liberty and are entitled to approach a new employer. 24 Appraisal of the strength of the plaintiff's case with respect to there having been breaches of the restraint and appraisal of the strength of the fear that there will be further breaches are closely related. The defendant's duties to VIP Transport were stated in a letter of employment in broad language and they included: "To promote the name of VIP Transport to a range of owner/drivers with a view to expanding the existing fleet." 25 The plaintiff's evidence-in-chief by the same Mr Richardson establishes only that a radio room operator (an employee, not a contract driver) named Frank Gutierrez who had worked next to the defendant as a radio operator and was friendly with him through their workplace connection, resigned, gave notice on 24 August 2010 and left on 27 August when he was required by Mr McDowell to leave the premises. 26 Mr Gutierrez had arranged to take up employment with VIP Transport for whom the defendant now works and was interviewed by VIP's general manager and operations manager on 23 August 2010 after contacting the defendant and asking him to organise the interview. The defendant did not participate in the interview. 27 Mr Richardson gives no evidence which could be thought to establish that the defendant dealt with Mr Gutierrez in a way which solicited him or enticed him to leave the plaintiff's employment. 28 Mr Richardson's evidence dealt with several other employees. His evidence shows the basis of his apprehension and what he believed but it is not admissible evidence of any solicitation or like conduct by the defendant. 29 The defendant and also Mr Gutierrez gave accounts of the events which extended over many months from February 2010 when there had been discussion in which Mr Gutierrez had spoken of his unhappiness with his employment and interests in other opportunities. In early August the defendant told him: There is a job here at VIP if you're still looking for a job." and discussion proceeded from there. 30 The defendant's evidence confirms what Mr Gutierrez has sworn to in a detailed account which attributes the real initiative to Mr Gutierrez, although in my opinion it does confirm a breach by the defendant. 31 Although Mr Gutierrez initiated the contact, there is a good case on the facts that the negotiations developed into solicitation by the defendant leading to Mr Gutierrez being engaged by VIP as an employee, although it was not the defendant who made that decision. There is a prima facie case that this constituted soliciting an employee of the plaintiff. The events arose almost casually out of a relatively longstanding friendship and such initiative as the defendant took was a minimal part of the events that led to Mr Gutierrez changing employment. 32 The defendant also gave evidence of his general involvement in recruitment activity and a routine in which newspaper advertisements are published and he receives telephone calls from persons who respond whom he questions before deciding whether to invite them for interview. The advertisements ask interested persons to telephone him. In this process, he has received hundreds of telephone calls from interested drivers, including about twenty who were either currently working for the plaintiff (and these would fall within the restraint) or who had left the plaintiff and were looking for work (and these would not). It is his evidence that he told the majority of those currently working for the plaintiff that they were better off staying there in permanent work. Of those who attended for interview, two decided to accept employment with VIP Transport. 33 Plaintiff's counsel contended that on the evidence it should be inferred that it is highly likely that Mr Mears will have further contact with others of its contract drivers before expiry of the restraint and that this is a primary consideration for this application. I should evaluate the likelihood that there may be further breaches. As depicted by the defendant's evidence, only two drivers with whom he had any contact have left their contractual relationship with the plaintiff to work for VIP. These and other contractors who spoke to him did so in response to advertisements published quite generally in newspapers. He denies soliciting or enticing these persons or otherwise acting in breach of the restraint. 34 Apprehension of future breaches may be based on circumstances such as motive and opportunity even if there is no direct evidence of breaches, see John Fairfax Publications v Birt at 44, Brereton J. On the evidence before me, the defendant is in a very strong position. The plaintiff's case that he is in breach of the restraint is only supported by the evidence in one instance and the ground for apprehension that there may be future breaches is faint indeed. There are very poor prospects of the plaintiff establishing solicitation or enticement of persons who have responded to newspaper advertisements. The plaintiff's case really rests on one instance of Mr Gutierrez and in that case the initiative came from Mr Gutierrez himself. 35 On the evidence, the defendant has not been conducting raids on the plaintiff's staff. It should not be found that he is likely to do so. 36 In my judgment the plaintiff does not have a sufficiently strong prima facie case to warrant an interlocutory injunction. 37 The defendant has stated on affidavit: "57. I am prepared to give an undertaking to the court to keep a proper and accurate record of all communications with persons whom I know or come to know to be a current employee or current contractor of Allied up to and including 8 January 2011." 38 I have had regard to the availability of this undertaking and I propose to accept it while dismissing the applicant. I will direct that he is to allow the plaintiff to inspect the record after 29 January 2011. 39 A number of other considerations were debated before me including considerations relating to hardship. I do not think that they require my consideration. They could have at the most a very small part in my disposition. An interlocutory injunction would introduce complexity into the defendant's relationship with his new employer. I do not see this as a hardship because it flows from the contractual obligation he undertook. The injunction would enforce an express negative stipulation for breach of which assessment of damages is plainly difficult. These considerations favour the application but they are not conclusive and they are overborne. 40 My orders are: 1. I note and accept the undertaking of the defendant to the court set out in para (57) of his affidavit of 7 September 2010 and direct that he produce his record of communications for inspection by the plaintiff if required to do so after 29 January 2011. 2. The plaintiff's application for an interlocutory injunction is dismissed with costs. 41 The proceedings will be listed for directions before the Registrar at 9.00am on Monday 11 October 2010. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.