Legal obligations, on both sides, aren’t over once an employee leaves their job. Here is what you need to know.

Most of the legal obligations in the employment relationship begin when a staff member comes on board and end with their resignation or termination. But the time before and following employment is hardly a legal black hole.

There is a range of obligations HR needs to be aware of that regulate conduct before a prospective employee begins (for more on this, see our article on pre-employment obligations). There are also obligations that outline how both parties should act following the conclusion of the relationship.

Restraint of trade

Perhaps the most common form of post-employment obligation, restraints of trade are contractual clauses that limit the ability of employees to move from one job to another and take their clients, knowledge or colleagues with them. The law on this topic is complicated and changing, but essentially courts will not uphold a restraint of trade clause unless it:

1. Protects a legitimate interest of the employer;
2. Goes no further than is reasonably necessary to do so, considering both the interest of the parties and the public interest.

A clause that prevents an employee from working in the same sector for three months within a 10-kilometre radius might be reasonable; a clause prohibiting the employee from undertaking any work for 12 months anywhere in the world would almost never be.

In Just Group v Peck, the chief financial officer of Just Group left to work for a competitor, the Cotton On Group. Just Group failed to enforce a clause preventing Peck from engaging in any activity “the same as, or similar to” any part of the Just Group’s business.

The clause was ‘cascading’, in that it provided various restraints in the event that some were invalidated by a court – it applied variously to Australia and New Zealand, Australia or Victoria, and for 24, 18 or 12 months.

While such clauses are common, it was frowned upon in Just Group’s case, given “it is not for the court to make a new agreement for the parties”. Because of the uncertainty in this area, restraint of trade clauses should be drafted with careful consideration.

Confidential information

Employees have contractual, equitable and sometimes statutory duties not to misuse confidential information. These duties usually narrow after termination. However, the employee is not completely off the hook. While they are free to use the skill, experience, know-how and general knowledge they gained during their tenure, the law prohibits the post-employment use of trade secrets.

In Ansell Rubber v Allied Rubber Industries, two workers at a glove-making factory misused their employer’s confidential information to set up a competing business. They were found in breach, ordered to cease using a machine they created based on the confidential information and to pay damages.

Relevant factors considered in the case included the secrecy of the information, its value, the efforts spent by the employer in developing the information and the ease with which the information could be acquired.

References

An employer is under no obligation to provide a reference, unless this duty is created by an express or implied term of the contract. In industries where the absence of a reference will make it extremely difficult to gain new employment, courts may be more willing to imply a term than they would otherwise. 

Once an employer decides to give a reference, it should provide an honest and accurate one. If it doesn’t, the employer could be held liable in defamation to the former employee if they can’t find another job due to an unfairly negative reference. Or it could be held negligent to another employer who hires the person on the basis of a misleading reference and regrets the decision.

An edited version of this article appeared in the June 2018 edition of HRM magazine.