Repudiated Contract - Restraint Unenforceable
28 September 2017The Victorian Court of appeal recently rejected financial services firm Crowe Horwarth Pty Ltd's appeal to enforce post-employment restraints against a senior accountant who sought to provide accounting services to its clients and start his own boutique firm.
The key reason that Crowe Horwarth was not able to enforce the restraint was because it breached the employment contract by unlawfully changing a bonus payment scheme and the employee's role within the firm.
Crowe Horwarth paid bonuses to employees each year under an incentive scheme. Eligibility for such bonuses was based on prescribed mandatory criteria, including employee's performance and broader economic conditions, but the final decision regarding payment of bonuses remained the prerogative of management. In June 2016, the business informed employees that it was planning to defer payment of 20% of the annual bonuses and distribute that component over three years.
The senior accountant argued that there was nothing in his employment contract that authorised his employer to withhold a proportion of the bonus and that amounted to a repudiation of his employment contract. He left the firm.
The Court applied the seminal authority on the subject, a House of Lords decision from 1909 - General Billposting Company Ltd v Atkinson. That decision established the principle that an employer, having breached an employment contract and brought it to an end, should not be permitted to rely upon a restraint clause contained within it.
The employee is now unfettered by his restraint and may seek to poach his former employer's clients and establish a rival business.