Former Reserve Bank Governor Adrian Orr has remained in the media spotlight following his departure from the Bank in March this year.
The latest interest stems from the Reserve Bank’s annual report, which revealed Orr received close to $1.2 million upon exiting the role, including a $416,000 payment made in connection with a restraint of trade clause in his employment agreement.
Many have questioned the rationale for including such a clause in Orr’s contract, given that the Reserve Bank operates as a statutory monopoly and not a commercial business with traditional competitors.
A Reserve Bank spokesperson clarified that “Adrian’s terms and conditions of appointment as governor, agreed at the time of his appointment, included a restraint trade period for six months, offset against any income he earns”. It was noted that the clause was “to protect confidential information he was privy to as governor.”
The Reserve Bank further stated that the two key objectives of the restraint of trade clause were to discourage Orr from moving directly into roles with a regulated entity or engaging in the financial markets, and from seeking future employment opportunities while still in office, as his term approached conclusion.
However, following the release of the settlement agreement under the Official Information Act, the basis for the exit package has been questioned. It has been characterised variously as a form of “hush money” or a payment for ongoing confidentiality or non-disparagement obligations.
This confusion likely arises from the fact that the settlement agreement includes all three types of clauses: restraint of trade, confidentiality, and non-disparagement. These provisions often appear together in exit packages but serve distinct and important legal purposes.
In general, restraint of trade clauses limit post-employment competition, confidentiality clauses protect sensitive information, and non-disparagement clauses prohibit harmful remarks, with each serving a separate protective purpose in employment settlements.
A restraint of trade clause is designed to prevent a departing employee from immediately entering into competitive employment or business activities that could harm the employer’s interests. This might include working for a competitor, soliciting clients or staff, or establishing a business in the same industry. These clauses are commonly time-limited and geographically defined.
In New Zealand, the starting point is that a restraint of trade will be unenforceable unless the employer can demonstrate that the clause is reasonable, necessary to protect a legitimate proprietary interest, and not contrary to public policy.
In Orr’s case, the Bank appears to be relying on his access to sensitive financial and regulatory information, and his senior role in shaping monetary policy, to justify a temporary period of non-engagement with financial markets or regulated entities.
A confidentiality clause, in contrast, prohibits employees from disclosing or using confidential information acquired during their employment, both during and after their tenure. The protected information typically includes trade secrets, customer lists, and other commercially sensitive data.
However, confidentiality obligations exist in all employment agreements and therefore it would not be necessary to include an additional payment in a settlement agreement in order to enforce these obligations.
A non-disparagement clause prevents parties from making negative or harmful remarks about each other, including in social media.
Unlike the ongoing duty of confidentiality, there is no automatic non-disparagement obligation that binds the parties after the employment relationship ends. For this reason such clauses are typically included in settlement agreements.
However, in this case the payment made to Orr was specifically tied to the restraint of trade component of the settlement, not as compensation for confidentiality or non-disparagement, which were separate obligations. Whilst the addition of these clauses may have contributed to public scepticism, they were not in fact the basis for the payments made.
The fact that the restraint payment was offset against any income Orr earned during the restraint period could suggest that it functioned as a form of paid “gardening leave”, ensuring that he remained out of roles that could create actual or perceived conflicts during a sensitive transitional period.
The media and public may still raise issues about the optics or scale of such a payment, particularly given the taxpayer-funded nature of the Bank. However, from a legal standpoint, the rationale behind the clause is not particularly unusual.
Restraints of trade are a common risk management tool, especially in executive and regulatory roles.
In this case, the clause appears to have been tailored to the unique responsibilities and risks associated with leading New Zealand’s central bank. It served a specific and lawful function, including to maintain public trust and safeguard sensitive information during a transition in leadership.
Originally published in The Post
