Hally Labels Ltd v Kevin Powell

JurisdictionNew Zealand
CourtEmployment Court
JudgeB S Travis
Judgment Date13 May 2011
Docket NumberARC 32/11

[2011] NZEmpC 43

IN THE EMPLOYMENT COURT AUCKLAND

ARC 32/11

BETWEEN

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

Hally Labels Limited
Plaintiff
and
Kevin Powell
Defendant
Counsel:

Chris Patterson and Shelley Kopu, counsel for plaintiff

Andrew Gallie, counsel for defendant

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).

Held: For interim purposes it was accepted that Hally Ltd had established as a serious issue that the restraint was reasonable and was necessary to protect proprietary interest of Hally Ltd at the time it was entered into. It was also conceded that there was no other remedy readily available to Hally Ltd and there was a serious issue to be tried as to the reasonableness of the restraint.

The alleged breach by Hally Ltd was the failure to pay P the six months' base salary when it invoked the restraint clause, or at the latest when the employment ended. The wording of the clause did arguably contemplate the making of the entire payment at the time of the invocation and it was seriously arguable that the “business efficacy” test ( Attorney-General v NZ Post Primary Teachers Association) supported the implication that time for payment was as P contended.

However it was also seriously arguable that the restraint could be construed to require payment to be made at the time P acknowledged being bound by the restraint or had made express demand for payment. The line of authority relied on for the requirement to give notice involved vendor/purchaser cases though, where different considerations might apply. The House of Lords had held that a repudiatory breach of contract by an employer released the employee from a restraint ( General Billposting Co Ltd v Atkinson). However there were doubts about the continuing influence of General Billposting Company Ltd and in another case, limited relief had been granted restraining competition notwithstanding the argument that there was a repudiatory breach of contract ( Grey Advertising (NZ) Ltd v Marinkovich).

Although Hally argued that P had affirmed the contract by negotiating about the restraint, in the circumstances it was arguable that there was no affirmation of the contract after P had full knowledge of the alleged breach of the term relating to payment. There was no guarantee at the time of cancellation that Hally Ltd was intending to pay the full consideration. Hally Ltd had made a conditional offer to pay in twelve monthly instalments. That would reduce the benefit of the agreement to P and increase its burden, making it substantially different from that contracted for. It was arguable that P successfully cancelled the agreement under s7 CRA and that the restraint was no longer enforceable.

The balance of convenience did not strongly favour either party. There was an issue as to whether the work P was doing for Geon Ltd would in any way affect Hally Ltd. Equally there was the fact that Hally Ltd and Geon Ltd had mutual customers and P would now be acting in Geon Ltd's best interests. The imposition of relief would have an impact on Geon Ltd which had acted properly at all times. Further, P would undergo significant financial pressure if he was constrained from working at Geon. P had undertaken to abide by the non-solicitation and confidentiality clauses in his employment agreement with Hally Ltd. In terms of overall justice the delay in Hally Ltd getting back to P initially was not reasonably explained and it was arguable that Hally Ltd had failed to comply with its statutory duty under s4 Employment Relations Act 2000 (parties to employment relationship to deal with each other in good faith).

Given P's implied undertaking not to compete with Hally Ltd in the interim, overall justice favoured declining the interim relief.

Interim relief declined.

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...

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