Employment contracts for real estate agents frequently contain restraints of trade and notice periods for termination by the employee.
Notice Period
For an employer, a notice period is a time in which it may wish to arrange a replacement, secure its clients and contacts, effect a handover of work and clients, and other transitional steps.
Gardening Leave
Frequently however, an employer may upon receiving a notice of resignation, elect to put the employee on “gardening leave” – a quaint term used to describe a situation where the employment continues until the end of the notice period, but the employee does not actually come to or do any work for the employer, and so presumably may occupy their time with gardening. Reasons for that may include a wish to effect a clean break and preserve any key relationships.
Importantly, all of the obligations of an employment relationship continue to operate during the notice period even if the employee is on “gardening leave” and an injunction will be granted to restrain any such breach of those obligations.
The Case
In Cushman & Wakefield Agency (NSW) Pty Ltd v Hudson [2023] NSWSC 218 (14 March 2023), the court granted the employer, a commercial real estate agency, an interim injunction to restrain the employee who was a senior manager and high performer from working for a direct competitor during a 3 month notice period.
The Law
The decision turned upon the usual requirements for the granting of an interim injunction:
- Whether there was a serious question to be tried: in this regard, the court found that:31. “First, the defendant is a senior employee of the plaintiff (with the title Director – Office Leasing) who, at the time the Contract was entered into, was a very significant fee earner for the business. The evidence indicates that she had developed personal connections with key personnel within clients of the plaintiff responsible for asset management and, while she may not have a personal relationship with senior executives at the level of chief executive officer or chief operating officer, that does not detract from the significance of the personal relationships which she did have with key clients of the plaintiff.32. Second, an accepted approach to determine whether the period of 3 months in cl 8.2(b) is reasonable is to have regard to the period reasonably required to recruit and train a suitable replacement who could take over dealings with the employer’s customers and have an opportunity to win their confidence: Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [36]; Label Manufacturers Australia Pty Ltd v Chatzopoulos [2022] NSWSC 1059 at [137]. In the present case, the evidence indicates that it would take the plaintiff at least 3 months in which to find a replacement who can re-establish the connection which the defendant had with its landlord clients.33. Third, while the evidence of Mr. Molchanoff regarding the defendant’s access to the plaintiff’s confidential information is at a fairly high level of generality, the Court can infer that her role gave her access to confidential information about tenders and other activities for clients which the plaintiff has a legitimate interest in protecting. It is established that a restraint on competition may be justified by the employer’s legitimate interest in protecting its confidential information: Woolworths Ltd v Olson [2004] NSWCA 372 at [67]. The information referred to at [28(f)] above is arguably confidential information which a non-compete provision can legitimately protect.
- Balance of convenience, for which the relevant matters to be considered include:“ whether damages are an adequate remedy; the defendant’s right to a livelihood, delay, the impact on third parties; whether the employee was warned and went into the position with “eyes wide open”; whether any hardship that would be visited on the defendant has come about because he or she is the author of his or her own misfortune; the strength of the case; and any undertakings that have been given”.
In finding there was a serious question to be tried, the court considered the express terms of the contract of employment, the seniority of the employer and the role she played in the company, the Sydney market in which she worked, the clients she had serviced, the confidential information to which she had access, and found the reasonableness of the 3 months notice period proven.
Conclusion
In granting the interlocutory injunction, the Court found that:
“the plaintiff has shown there is a serious question to be tried that cl 8.2(b) of the Contract is valid. While the employer/employee relationship has terminated as a result of the defendant’s resignation, she is bound by the requirement to remain on gardening leave for 3 months. This is on the basis that the plaintiff has established that 3 months is a reasonable period for the restraints imposed on the defendant during her period of gardening leave. Also, in my view, the balance of convenience favours the grant of interlocutory relief to enforce that restraint.”
The decision is unremarkable but serves as a timely reminder to employees seeking to exit one position to take up another with a competitor of their employer, that employment obligations continue during any notice period and gardening leave.
It also shows that an employer may well protect its own legitimate interests by enforcing restraints and employee obligations during notice periods with urgent injunctions.
If you have any queries or concerns about this please don’t hesitate to contact us.
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