Competing priorities - when non compete restraints do not work

A recent Employment Court case (Kiwi Stat Limited –v- Nichols) has emphasised that a company cannot stop an ex-employee working for a competitor without good reason, even if the employee has signed a restraint of trade clause on first being employed which agrees to such a restriction.

Kiwi Stat locates and places doctors in hospitals on locum or other short term assignments. There are two other companies in New Zealand that does the same, and many hospitals and doctors will use all three companies. Ms Nichols was a “locum coordinator”, whose role was to receive requests from a particular group of hospitals and to match a doctor to each request. She was offered a job with one of the competitor companies and Kiwi Stat tried to enforce a restraint of trade clause in her employment agreement with them which tried to prevent her from working for a competitor in New Zealand for 12 months.

The Employment Court decided that the restraint was unreasonable and declined to enforce it. Its starting point was that a restraint of trade or employment was usually unenforceable as contrary to public policy, but that restraints may be enforceable to the extent reasonably necessary to protect the legitimate proprietary interests of the employer.

In this case, though, the Court noted that the relationship that Kiwi Stat had with each doctor did not rely on any single employee like Ms Nichols, and that several locum coordinators had working relationships with each doctor. The relationships with doctors were also very much more with the company than with Ms Nichols. Therefore, the court was not satisfied that there was a sufficient substantial proprietary interest to be protected.

Furthermore, there was a confidentiality provision in the employment agreement with Kiwi Stat which adequately protected the confidential information which the company held on its database of hospitals and doctors. As Ms Nichols had not breached the confidentiality clause and did not intend to do so, the Court felt that this was an adequate mechanism to protect Kiwi Stat which was far less prejudicial to Ms Nichols.

So, Ms Nichols was able to continue working for her new employer. The lesson is, you can’t stop someone competing alone. You have to show that you have a substantial interest which needs protecting and that a non compete clause is the most effective way of doing so.