Focus: Green light for green-fingered brokers
11 November 2010
In brief: The NSW Supreme Court recently enforced a restraint deed prohibiting a former employee of an insurance broker from soliciting clients. Partner John Edmond and Law Graduate Tom Levi report on the Court of Appeal judgment upholding the decision.
How does it affect you?
- A cascading restraint clause will be enforceable if all the possible restraints apply independently and concurrently, such that the employee knows what restraints he or she will be bound by upon leaving the company.
- Twelve months is a reasonable period of time for an insurance broking company, whose clients have annual policies, to restrain former employees from soliciting or dealing with those clients.
Mr Peter Hanna was an experienced insurance broker, who OAMPS Insurance Brokers Ltd employed in 1990. In early 2010, at which time he was a client director with significant client contact, Mr Hanna resigned to take up a position at Strathearn Insurance Brokers. OAMPS sought to rely on the post-employment restraint deed that Mr Hanna signed in 2008.
The deed relevantly prohibited Mr Hanna from canvassing, soliciting or dealing with any OAMPS clients. The restraint periods were 15, 13 and 12 months, and the restraint areas were Australia, NSW and Sydney. The deed provided that each restraint resulting from any combination of the above constituted a separate and independent provision, severable from the other restraints. This meant there were nine restraints from the widest, 15 months in Australia, to the narrowest, 12 months in Sydney.
In July 2010, the NSW Supreme Court ordered that Mr Hanna be restrained for a period of 12 months from dealing with any OAMPS clients with which he had significant contact (please see our Focus ). The court decided that the restraint was drafted effectively and had a cumulative effect. It considered that 12 months was a reasonable time, as this would allow OAMPS to renew the annual policies of its clients without interference from Mr Hanna.
The Court of Appeal1 rejected Mr Hanna's argument that the restraint deed was void for uncertainty, as the clause clearly indicated nine restraints that were all to be binding. At a practical level, the widest restraint was the most relevant. However, there was no uncertainty and the clause did not require a court to make a finding of which alternative applied, distinguishing it from a situation involving a complex and difficult clause with multiple permutations and combinations.
The court then considered the reasonableness of the restraint clause, noting at the outset that the reasonableness needed to be determined at the time the contract was entered into. This has traditionally been determined having regard to one or both of the time required for:
- a reasonably competent replacement employee to establish a relationship with clients; and
- severing the relationship between the former employee and the relevant clients.
The court held that neither of these tests was mandatory, saying that 'the use of one test or another depends on the facts and the evaluation of the approach that is reasonable'. It considered that, in this case, 12 months was a reasonable time for OAMPS to protect its relationship with its clients. As most of its clients' policies required annual renewals, 12 months was the minimum period required to allow OAMPS the opportunity to secure its business connections or for Mr Hanna's connection with the clients to be severed.
- Hanna v OAMPS Insurance Brokers Ltd  NSWCA 267 (19 October 2010).
- Jamie WellsPartner,
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- Louise JenkinsPartner,
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