The Restraint of Trade and the Barista

Many employers want a clause in their agreements that will prevent an employee resigning and working for a competitor or worse setting up their own business and poaching clients. They want a restraint of trade. For some people this is an intrusion by their employer into their natural right to seek work in a capitalist society and competitive job market… and the law agrees with them… well kind of.

The law says they are void at first instance, unless they are reasonable and the employer has a propriety right to protect. 

The law says they are void at first instance, unless the employer can establish they are reasonable and it has a propriety right to protect, i.e. clients. Whether a restraint of trade clause is reasonable depends on the type of business you are in, the employee’s role and duties, how long the period of restraint is and the geographical area it covers.

Only when the Courts have decided it is reasonable and there is actually an interest worth protecting, will they enforce it. A fascinating dispute over this clause involved both Barristers and Baristas!

An espresso bar (Fuel Espresso Ltd) in Wellington was disappointed to find one of its employees who had resigned starting work immediately at competitor’s coffee cart just 70 metres down the road. Fuel’s mood was as dark and bitter as a Colombian short black. They filed for an interim injunction to stop him pedaling his coffees. They pointed out that he had agreed to a restraint of trade clause that prevented him from working for a competitor within a radius of 100 metres of one of their bars, for a period of three months.

In the Employment Court, Judge Shaw agreed that the restraint of trade was reasonable and there probably was a proprietary interest to protect. However she did not enforce the clause. Why? Judge Shaw said that because the restraint was something over and above normal terms and conditions, then something extra (like more money) should have been paid for it. Here, the Judge found that because the employee was paid a flat rate which was the same as other employees, nothing extra had been paid or given for the restraint. It was, therefore, she said, unenforceable.

Normally that’s where it would end but within a fortnight and no doubt after a lot of coffee, Fuel went to the Court of Appeal and won! The Judges said the Employment Court was wrong to state something more by way of consideration had to be given. The mutual promises made in the agreement were consideration. Therefore, they concluded that as long as the restraint was reasonable and a proprietary interest needed protecting it was okay.

If you are an employee and all this legal mumbo jumbo goes over your head then simply note there are three important messages in this story. First, do not agree to a restraint of trade without getting advice; secondly, your employer understandably will get somewhat annoyed if you break your word; and thirdly, don’t get on the bad side of an espresso bar - they’ll take you all the way to the highest (well second highest) court in the land.

For employers the two important messages in this story are, first, make certain the restraint is reasonable and, secondly, be certain that what you are trying to protect is worth considerably more than the legal fees you could incur in doing so.