Restrictions on the ability of employees to leave to work for competitor businesses are often slipped into employment agreements, but are seldom negotiated and discussed. An obvious reason for this is that an employee who is just about to start a job may feel uncomfortable arguing over what should happen when they leave. This could be viewed as demonstrating a lack of commitment to their new employer, and in turn cause the employer to view them with suspicion.
Another reason is that people commonly assume that non-compete clauses are unenforceable and therefore simply accept them without question on the basis that they will challenge them later if need be.
The recent case involving Tova O’Brien sounds a warning to employees who sign up to such agreements, and then breach them. O’Brien was employed by Discovery NZ Limited as a political editor and resigned in October 2021 to take up a role with MediaWorks Radio Limited as a breakfast host on a new morning radio show.
Her employment agreement contained certain restrictions on her activities following the termination of her employment, including that she could not work “in any business or activity in competition with MediaWorks in the Geographical Area specified”. The specified area was the whole of New Zealand and the non-compete restraint was stated to apply for a period of 3 months. There were further restrictions relating to solicitation of employees and clients which applied for 6 months post termination.
The starting point for the Employment Relations Authority was that such clauses are deemed to be unenforceable in the first instance, and therefore Discovery was required to establish some “proprietary interest” that the restraints were necessary to protect.
The proprietary interests Discovery sought to rely on were its confidential information, business relationships and goodwill.
O’Brien argued that she was not aware of any confidential information over which Discovery could assert a proprietary interest and that it was unfair to restrain her from using her skill and knowledge as a journalist.
The authority found that Discovery did in fact have confidential information that it had a right to protect, including editorial priorities, future plans, identities of confidential sources and team salaries. It also found that O’Brien had key relationships with Reid Polling and was responsible for commissioning polling, setting questions and presenting the results, and it was legitimate for Discovery to seek to protect these business interests. Discovery was also entitled to protect its goodwill, even though this was in part attributable to O’Brien’s reputation.
In relation to the reasonableness of the non-compete restraint, the authority found that it was reasonable in scope, but exercised its discretion to reduce the length from three months to seven weeks.
Ultimately the authority did not accept O’Brien’s claim that the restraint was essentially punitive and amounted to an unreasonable limitation on the right to use her skills and knowledge to earn a living.
What is interesting about this case is the finding that O’Brien’s new role with MediaWorks put her in competition with Discovery. Aside from the fact that both companies are media organisations, the shows fronted by O’Brien seem quite different. At Discovery, O’Brien presented political news and commentary on a television platform, whereas the role with MediaWorks is as a breakfast host on radio. Evidence was given during the hearing that audiences are usually habituated to either radio or television at certain times of the day and are therefore unlikely to switch.
Given the broad view that the authority took of what amounts to a competitive situation, the likely consequence is that O’Brien would be similarly restrained from going to work for any media organisation where her reputation and knowledge may be of advantage to her new employer. In other words she simply would not be able to work as a journalist in New Zealand during the restraint period.
This raises serious questions as to the fairness of restraint of trade clauses. Labour MP Helen White has recently called for a ban on employers imposing these clauses on at least, lower paid workers. She claims that they supress wages and are “anti-competitive”. She notes that they also lock employees into not leaving their current employer as they are too afraid and cannot afford to challenge restraint provisions.
Given the significant impact of non-compete clauses, it is right that we have an open discussion about the fairness of them. O’Brien’s case is a clear example of the practical effects of enforcing these types of provisions. We need to talk about whether this is desirable in an increasingly fluid labour market.