Hally Labels Ltd v Kevin Powell

• Jurisdiction: New Zealand
• Judge: B S Travis
• Judgment Date: 13 May 2011
• Court: Employment Court
• Docket Number: ARC 32/11
• Date: 13 May 2011

BETWEEN

In the Matter of a challenge to a determination of the Employment Relations Authority

Hally Labels Limited

Plaintiff

and

Kevin Powell

Defendant

[2011] NZEmpC 43

ARC 32/11

IN THE EMPLOYMENT COURT AUCKLAND

Challenge to a determination of the Employment Relations Authority refusing to grant an interim injunction restraining the defendant from competing with the plaintiff — plaintiff was a privately owned adhesive labelling company — defendant was the Business Manager (New Zealand) — on tendering his resignation he openly disclosed his intention to take up employment with a competitor — plaintiff invoked restraint of trade clause in employment contract — delays in communication between the parties followed — whether the plaintiff had breached the restraint provision and the defendant was entitled to cancel under s7 Contractual Remedies Act 1979 (cancellation of contract).

Counsel:

Chris Patterson and Shelley Kopu, counsel for plaintiff

Andrew Gallie, counsel for defendant

ORAL JUDGMENT OF JUDGE B S Travis

1 The plaintiff has challenged the Employment Relations Authority's refusal to grant it an interim injunction restraining the defendant from competing with it. The Authority will be investigating the substantive matter on 26 May 2011. The interim injunction is being sought to uphold a restraint contained in an employment agreement made on 11 May 2010, which contained the following clause:

• 9.0 Restraint on post-employment activities.

  The parties recognise that the employer has a legitimate proprietary interest in the customers, procedures and practices of the company and agree to the following restraints in recognition of national status and seniority of the employee and the significance of those proprietary interests to the employer.

• 9.1 The Business Development manager will not, for a period of one year from the termination of his employment, directly or indirectly solicit or entice or attempt to solicit or entice any customer of the Company to place business with any competitor of the Company, nor will she aid or abet any other person to so solicit or entice any customer of the Company.

• 9.2 The Business Development Manager shall not at any time during the term of this employment, or for a period of twelve months after the termination of this employment, either on the his or own account or for any other person, firm, or company, solicit or endeavour to entice away from or discourage from being employed by the Company, any person who shall at any time during the period of six months before the termination of this Agreement, have been an employee of the Company, without the express written consent of the Company.

• 9.3 During the term of this Agreement, and for the period of twelve months after the termination of this Agreement, the Business Development Manager shall not either on his own account or for any other person, firm or company, employ in any competitive capacity any other employee who was at any time for a period of six months proceeding termination of this Agreement, an employee of the Company without the express written consent of the Company.

• 9.4 The Company may within 7 days of giving or receiving notice of termination of the employment invoke the following sub-clause the consideration for which will be the making of a payment to Business Development Manager in the sum of six months base salary:

• 9.4.1 The Business Development Manager shall not, for a period of 12 months after the termination of this agreement (for whatever reason); carry on, be connected, engaged or interested either directly or indirectly or alone with any other person or persons, (whether as Principal, Partner, Agent, Director, Shareholder, Employee, or otherwise), in any business in the adhesive label manufacturing industry, within New Zealand or Australia that is in competition, either directly or indirectly, with the Company.

2 The agreement also contains an embargo on the use by the defendant of confidential information which is comprehensively defined.

Factual Background

3 It appears that the facts are not greatly in dispute and the defendant has accepted the chronology of events annexed to the submissions filed by counsel for the plaintiff. The following factual findings, based as they are on affidavits and without the benefit of cross-examination of witnesses, should be regarded as tentative only.

4 The plaintiff (Hally) is a privately owned adhesive labelling company, with over 45 years experience in Australasia. It has assets sufficient to support an undertaking as to damages. It develops, manufactures and supplies adhesive labels to a wide range of customers and has a strong market position in supplying labels to the meat sector.

5 The defendant joined a predecessor company of the defendant in 1989. After 2002 he became market manager, specialising in the meat and supermarket sectors and in developing relationships with existing and new customers until his appointment as Business Development Manager (New Zealand) in April 2010. The same restraint of trade that is contained in the 2010 employment agreement was included in an agreement dated 12 September 2005, when the defendant was national sales manager. Prior to that time, and from 1 July 2002, the plaintiff was subject to the same restraint but it was geographically limited to New Zealand only.

6 By a letter dated 6 December 2010, the defendant received an offer of employment from Geon Group Ltd (Geon), a competitor of the plaintiff in the label industry, subject to there being no restraint of trade obligations on the defendant's part, with a commencement date between 1 February and 30 June 2011.

7 On 7 December 2010 the defendant, by a telephone call to his manager, David Welch, and a subsequent email, resigned from his employment. He openly disclosed to Hally that he intended to take up employment at Geon.

8 The plaintiff alleges that immediately before the defendant submitted his resignation on 7 December the defendant attended a meeting with a major supplier of Hally's in which commercially sensitive information for the 2011 year was presented and discussed. After submitting his resignation, it is alleged the defendant attempted to attend a monthly strategy meeting until he was instructed by Hally's Chief Executive Officer, Trevor Kamins, not to attend because of the resignation.

9 The defendant was placed on garden leave through to the end date of his employment on 7 February 2011.

10 It is also alleged that at a meeting on 9 December, representatives of the plaintiff met with the defendant to discuss the role that he had been offered at Geon, at which point the defendant acknowledged that he understood the restraint of trade but sought to alter its terms. He was allegedly told that Hally would consider its position and get back to him.

11 It is common ground that on 13 December, by way of a letter, the plaintiff invoked the restraint of trade. The letter stated Hally would meet with the defendant to discuss the implications of this. Mr Gallie, the defendant's counsel, responded on 17 December by a letter in which he raised issues as to the reasonableness and therefore the enforceability of the restraint, the possibility of the defendant seeking a declaratory judgment as to its enforceability and in which he invited the plaintiff to consider a reduction in the restraint from 12 to 6 months with payment reduced to 3 months.

12 There was no reply to the 17 December letter until 18 February 2011. Mr Patterson, counsel for the plaintiff, responded apologising for the delay, rejecting the offer, indicating that the plaintiff might consider a variation providing its commercial interests were adequately protected and inviting the defendant to put forward an alternative proposal.

13 Mr Gallie responded on 1 March noting that it had taken two months for a response to his letter, repeating the defendant's offer and stating:

Time is now of the essence in terms of bringing this issue to a conclusion and to that end we shall need to hear back from you in response to this letter no later than close of business 8 March 2011.

14 Mr Patterson responded on 9 March maintaining the plaintiff's refusal to accept the defendant's offer and advising that should the defendant breach the terms of the restraint, all steps necessary to enforce it would be taken by the plaintiff. Again, an alternative proposal was invited.

15 Mr Gallie responded to Mr Patterson on 10 March stating that clause 9.4 of the agreement required the payment to the defendant of six months' salary, that the clause was invoked on 13 December and that, while time was not expressly stated to be of the essence, it was implicit that the payment would be made either upon the plaintiff invoking the subclause, or before the end of the employment, which was 7 February 2011. The letter claimed that payment of the requisite consideration was an essential term, the failure to pay constituted a breach of the restraint clause which substantially reduced the benefit and increased the burden of the agreement for the defendant and made the benefit and the burden of the agreement substantially different from that which was agreed upon. It advised that the defendant accordingly exercised his right to cancel the restraint agreement pursuant to s 7(3)(b) of the Contractual Remedies Act 1979 and that he no longer considered himself bound.

16 Mr Patterson responded by an email on Monday 14 March agreeing that there was no express time for payment in the agreement and stating that his client had decided to continue paying the defendant, as it had previously done, by monthly payments. The plaintiff did not accept the cancellation and reserved its position to take steps to enforce the restraint unless the plaintiff gave an undertaking to comply by 21 March 2011. Mr Gallie replied on 18 March, maintaining the claim that the...