Nina Hoang: Okay, onto the main topic, Kim?

Kim McLagan: Yeah.

Nina Hoang: Do you want to run through what has happened with the election?

Kim McLagan: No.

Nina Hoang: Just what the changes are? All right, sure. I’ll do it.

Kim McLagan: You’re doing this.

Nina Hoang: Okay, all right, no worries. So essentially Jim Chalmers, who is the treasurer, has announced that from 2027, they intend, if Labour gets elected, to ban non-competes for low-income employees, which they define as anyone who makes less than the high-income threshold, which is currently 175,000. So the purpose of this is because research has shown that employees who are subject to a non-compete are paid quite significantly less than similar employees who are not. In fact, I think the ACTU said that they get 4% less pay on average.

Kim McLagan: Mm.

Nina Hoang: And there’s some like very awful stories, if you read some of the submissions, of the kinds of restraints that are trying to be imposed on people. Like I read one where someone worked in an aged care, and the restraints that they couldn’t work for anyone, any other business in the same industry in the entire world.

Kim McLagan: Oh .

Nina Hoang: Which is just absolutely crazy, but yeah, you have these small businesses who are kind of like running rampant. I’ve heard about hairdressers being subjected to very, very crazy non-competes and stuff like that. They can’t start their own business.

Kim McLagan: Yeah, which is crazy in so many different industries. So we’ve just got to keep in mind the purpose of a restraint is to only protect the legitimate business interests of the company. It can’t go any further than that. And so a lot of, like your worldwide restraint, which is totally unenforceable, and to enforce these clauses, obviously, it means going to court, and it’s a very expensive process. So that’s a deterrent automatically. But it also depends on the circumstances of the individual case as well, doesn’t it?

Nina Hoang: Yes, you’re 100% right. So I think a lot of people are concerned about, well, why is this necessary? ‘Cause the current law, which is mostly based on the common law, means that it gets actually extremely hard to enforce any restraint, including non-competes. Like you said, it has to be very narrowly drafted. It can only go so far as to protect the legitimate interests Of the business.

The moment it’s steps out of it, it will be invalid, except in New South Wales, where there is legislation that allows you to read it down, and people can use cascading clauses and stuff like that, nut the vast majority, particularly around non-competes for low-income workers, would never be enforceable, but the problem is people just aren’t aware of that. And it is really impacting competition and deterring people from finding other jobs because they’re concerned.

They’re not aware that their employers have to go to court. That it’s an expensive process. So I think it is a good idea to implement it to protect low-income workers. I think though where it is a legitimate concern by some businesses is the fact that the salary cap is quite high. Like I don’t necessarily consider someone who’s making 175,000 a low-income employee.

Kim McLagan: No, not really.

Nina Hoang: And certain roles who are make on that salary in certain businesses might be quite senior. So we’ve had meet industry businesses, for example, who’ve had quite senior employees who have very intimate knowledge of say the price of cattle, and that is very, very marginal between competitors. So going to a competitor with that knowledge could very much destroy the goodwill of your previous employer.

Kim McLagan: So you’re far better off in your contracts then to make sure you protect your confidential information and your intellectual property rather than trying to rely on a restraint.

Nina Hoang: Yeah, I think that’s got to be the key learning from this, that although this is happening and there are legitimate concerns, I don’t think it is the end of the world. Like you said, if you’ve got good clauses in your employment contract to protect against confidential information and intellectual property. You can also use a deed, which will make it even more enforceable. And also there are protections under the Corporations Act. So sections 182 and 183, that prevents an employee from misusing their position or information they obtain.

It’s extended to employees, so it’s not just offices, and they can’t use that to benefit or gain an advantage for themselves or anyone else. So you definitely have those actions, and we have definitely helped employers pursue employees under that if they’ve breached. And things like undertakings, right? You can definitely use all those things, but I think another thing is the fear that, oh, if I don’t have a non-compete, then I’m not going to be able to keep my employees. But that’s so silly because you shouldn’t be trying to restrain them from leaving. You should make them want to stay, right?

Kim McLagan: Yeah. Keep them happy.

Nina Hoang: Yeah.

Kim McLagan: So things like offer them some, well, wherever you can, offer flexibility. If you’ve got the means to offer pay parental leave. Foster really good culture at work.

Nina Hoang: Yes, exactly, the employee value proposition is probably one of your most valuable tools. And Andrew always talks about like at FCW, we do not have restraints because the idea is if we make people enjoy being here, then they will just stay instead of being forced to stay. So look, I think it’s caused a lot of debate in the news, but I don’t think it’s going to have as much impact as everyone thinks it will be. They have however discussed that they might eventually make it expand to high-income employees and relate to non-solicitation clause, which I think would be more of an issue, but until that happens, let’s not freak out. Yeah. All right.

Kim McLagan: Good advice. Thanks, Nina.

Nina Hoang: No worries. All right, let’s go onto the case study.

Kim McLagan: Eddie was the Victorian regional sales manager for Losttheplot IT Services or LITS. His sale performance in Victoria had dropped below the KPIs for new clients’ revenue and client retention over a three month period, and was continuing to decline. He had two meetings with the CEO, Dianne, and the national sales manager, Ivan. The meetings were amicable with Dianne and Ivan working through the data with him and discussing what support he needed.

During the first meeting, Eddie was defensive and said the economy had changed, but Ivan pointed out growth in all other states. In the second meeting, Eddie pushed back harder. After leaving the meeting, he saw his doctor and submitted a medical certificate stating that he was being bullied at work and was suffering from anxiety, and he’d be off for the next two days.

The CIO, Clancy, called Dianne the next day and reported some unusual activity. He explained that Eddie had downloaded key client data to his private email account. Dianne asked Clancy to check for any other history of data removal, and he came back the following day to report that after the first meeting, Eddie had also downloaded contracts with clients and financial modelling data onto a USB. Additionally, a large volume of documents from the client drive had been printed the following day, although Clancy was unable to identify which documents.

The next day, Eddie returned to work and presented a medical certificate stating that he was fit to return to work but not under the supervision of Ivan, the alleged bully. Dianne arranged an immediate meeting with Eddie, with Ivan present. She outlined the allegations against him and asked for his immediate response. She also asked him to locate the documents on his computer and delete them in front of both her and Ivan.

Eddie denied downloading the documents, and he refused to show what was in his private account. Dianne then summarily terminated his employment, handed him a letter requiring him to deliver up the information, took his computer and mobile phone, and Ivan escorted him off the premises. Dianne reminded Eddie of his cascading non-compete agreement for Victoria as well as the non-solicitation clause for any client of the business and the non-poaching clause for staff for a 12-month period.

The following day, Eddie’s solicitors wrote to say that Eddie accepted the repudiation of his employment contract, citing a breach of the medical certificate and wrongful termination, as the documents he sent home were not confidential and had been used to refute allegations of under performance, not for any improper purpose. As such, the restraints fell away. That was their allegation. The solicitor indicated that a general protections claim would be filed shortly, as Eddie’s termination arose from his complaint of bullying and his medical condition.

Nina Hoang: Yeah. Long one.

Kim McLagan: It was a long one. Do you want to read the first question?

Nina Hoang: Yup, so this is also a very long question. So Eddie was paid $160,000 per year and received discretionary commissions of over 250,000 per year. LITS was part of a vigorous competition in Victoria with five well-known competitors, but LITS was the largest. The restraints were set out in a Deed Pole with the non-compete cascading for 12, 9, and then 6 months. The area was Victoria and cascaded to the five other competitors. The non-solicitation was for clients he had worked with in the last 12 months, and the non-poaching was for a period of 12 months. Were the restraints enforceable subject to the repudiation argument?

Kim McLagan: Yeah, so I would say they were in this case because on the basis of what the problem says, they didn’t go any wider of what the, in order to protect the legitimate business interest of LITS.

Nina Hoang: Yeah, and I would say in this case, it was extremely explicit. Like it said, “You cannot go and work for these five other competitors,” which means that it is just considering the impact to the business. Like oftentimes we’ll see restraints where they’ll just say, “You can’t do it for any kind of business, similar business,” which is way too broad. And it’s cascaded down so that they can be read down, so definitely going to be valid. Kim, could Eddie have made a successful workers’ compensation claim prior to his termination?

Kim McLagan: I think it would’ve been very unlikely to succeed. We’d certainly defend that one on the basis of reasonable management action. The process wasn’t perfect in that they didn’t invite, well, presumably, didn’t invite him to bring a support person to either of the meetings, but we’d argue that given his seniority, that wasn’t essential in these cases.

Nina Hoang: And I also think one of the points, they invited him in straightaway and didn’t give him notice, but the breach was so significant.

Kim McLagan: Yeah, they had to.

Nina Hoang: Yeah, so that you could justify it. But yeah, no, he’s done the wrong thing. Like I think good luck trying to make that time.

Kim McLagan: And there’s also the expectation of reasonable management action as well. So

Nina Hoang: yeah,

Kim McLagan: I think we’d be fine with that one. So Nina, was Eddie bullied by Dianne and Ivan?

Nina Hoang: No, so bullying has to be like a pattern of unreasonable behaviour and has to be repetitive. I think in this case, they were just trying to manage his behaviour. I don’t think any of their actions was unreasonable, and they weren’t targeting him for anything as much as he was trying to say that they were. So, no, I think there would be no bullying. He wouldn’t succeed in any kind of bullying claim.

Kim McLagan: No. Well, we could, again, defend a bullying claim with reasonable management.

Nina Hoang: Exactly.

Kim McLagan: Couldn’t we?

Nina Hoang: So was there a repudiation of Eddie’s contract by Dianne and Ivan, and could Eddie evade his restraints as a result?

Kim McLagan: So no, I’d say there was no repudiation of the contract. In terms of the restraints falling away, given that he lied to them about taking the documents and his refusal to identify them or destroy them, that’s serious misconduct, so that would-

Nina Hoang: And it’s a breach of his fiduciary duties as well. So it would’ve to torn up everything. So he’s actually, I would say, had repudiated his contract.

Kim McLagan: Yes, exactly. So was the termination based on valid reason, and did Eddie fall within the unfair dismissal regime of the Fair Work Act?

Nina Hoang: So I think that if his lawyers had changed their mind and went for unfair dismissal, his salary, I think, is arguable as to whether it fell under, because if he had confirmed commissions, it probably would’ve put him over, because it was 250 commissions per year. And there are arguments in different cases in terms of whether it’s taken into account, but assuming, say, it didn’t.

Kim McLagan: Yeah, they’ve got to be fixed. In this case, they’re discretionary, so.

Nina Hoang: Oh, I missed the discretion bit. Yeah, that’s a good point.

Kim McLagan: They’re not guaranteed. He’s not guaranteed of getting them every year, so I think he would fall within the jurisdiction, and that bonus would not be taken into account.

Nina Hoang: Oh, okay.

Kim McLagan: In terms of his income.

Nina Hoang: Well, I think in that case though, they would probably… So he could file the claim, but I don’t think he would succeed ’cause there was a very valid reason for his dismissal.

Kim McLagan: Exactly.

Nina Hoang: Like we discussed before in terms of procedural fairness, I think they did everything by the book. Things could have been better, like they always can be, but the valid reason I think is so serious that they would’ve overlooked any small procedural deficiencies.

Kim McLagan: Yup, agreed.

Nina Hoang: And is a person fit for work if they have a certificate that says they have capacity to work but they can’t be managed?

Kim McLagan: Mm, so it’s an inherent requirement of your role that you can be managed. So if it’s a legitimate thing that his doctor said he just cannot be managed, then no, he’s not fit for the inherent requirements of his role. But in this case, he’s claiming that Ivan is the bully, so if LITS can find him employment reporting to someone new, they should be able to try and get medical evidence to say he’s actually fit to do the inherent requirements of his role ’cause he’s no longer reporting to Ivan.

Nina Hoang: Oh, okay. So, so long as they comply with that, then he’s fit, and they can still do whatever-

Kim McLagan: Whatever they need to.

Nina Hoang: They need to. Yeah. Okay. Cool.

Kim McLagan: So, will Eddie succeed with his general protections claim?

Nina Hoang: No, no, no.

Kim McLagan: No. That’s a big no no.

Nina Hoang: No. We already discussed all the reasons why he wouldn’t succeed, and so definitely not. That’s it. We got to the end. All right, well.

Kim McLagan: Next week I’m on annual leave, so, sorry, it won’t be me next week.

Nina Hoang: Oh, so it will definitely be Andrew and either Tom or I. But give us a thumbs up so we feel better about what we did today. Bye.

Kim McLagan: Thanks, everyone.