LexisNexis Practical Guidance®

The focus of remuneration regulation is to ensure that remuneration paid to executive employees is appropriately structured to strike a balance between providing appropriate reward for services rendered without encouraging excessive risk-taking or promoting corporate greed. In Australia executive remuneration practices and disclosure are regulated by a combination of the Corporations Act 2001 (Cth) (Corporations Act) (as amended), the ASX Listing Rules and the ASX Corporate Governance Council’s recommendations .

See Executive remuneration.

The employment contract is the principal source of rights and obligations for senior and executive employees. Accordingly, it is important that employers spend time at the outset considering what matters should be covered in their executive contracts. A well-drafted contract should:

• •set out the rights and obligations of the parties;
• •set the executive’s performance requirements (to reward, manage or discipline the executive as necessary);
• •protect the parties’ respective interests, ie on termination of employment; and
• •limit the scope for disputes as to the operation of the agreement and the implication of unintended terms.

See Drafting executive contracts.

Restraint clauses are express contractual provisions that restrict an employee from competing with the employer during the course of and after the termination of, their employment. The operation of a restraint clause is usually framed by a reference to:

• •a geographical area;
• •a period of time;
• •defined industries, businesses or activities that the employee cannot be involved in; and
• •former customers/clients or employees who the employee cannot contact or solicit.

The purpose of restraint clauses is to protect legitimate business interests of the employer. Freedom from competition is not, of itself, a protectable interest. Interests that are capable of supporting a restraint include the employer’s confidential information, trade secrets, customer relationships and staff.

The general rule is that all restraint clauses are void as against public policy unless it can be shown that:

• •the clause protects a legitimate interest of the employer;
• •the clause is reasonable to protect that interest; and
• •enforcement of the clause would not be contrary to the public interest.

See Introduction to post-employment restraints.

When considering whether to enforce a post-employment restraint, the courts will weigh up a number of competing interests including:

• •the employer’s interests in protecting its confidential information, customer connections and other legitimate business interests;
• •the employee’s ability to earn a living using his or her skills, experience and know-how; and
• •the public interest in freedom of trade and competition.

The most common remedy sought by employers when enforcing restraint clauses is an interlocutory injunction on the basis that a subsequent award of damages would be inadequate to remedy the breach. Nonetheless, there have been some instances where a court has awarded damages against a former employee for breaching a post-employment restraint.

See Enforceability of post-employment restraints.

A carefully-drafted restraint of trade can help an employer to prevent former employees from engaging in activities which could undermine the employer’s legitimate business interests following termination of employment. It is now well-established that the courts may enforce a restraint which protects the legitimate business interests of the employer. The key to a valid post-employment restraint is that the restraint goes no further than is reasonably necessary to protect those interests. A restraint which unreasonably impairs competition or restricts a person’s ability to apply their skills to earn a livelihood is likely to be struck down.

See Drafting post-employment restraint clauses.

Common law wrongful dismissal claims are usually the province of more senior employees who are not covered by the unfair dismissal regime, and for whom the potential to recover more money than they could under the Fair Work Act 2009 (Cth) (FW Act) provisions justifies the time and resources involved in pursuing the matter, as well as the risk of adverse costs orders if a claim is unsuccessful.

Where the termination of an employment contract is in breach of contract, the termination will be “wrongful” and the innocent party may seek a remedy at common law. When the employer is the party terminating, this is known as “wrongful dismissal”.

The two main remedies in wrongful dismissal cases are specific performance of the contract (similar in effect to reinstatement), and more commonly compensation. Compared to unfair dismissal claims under the FW Act, there is no cap on the amount of compensation available to a successful claimant in a wrongful dismissal action.

See Common law action for wrongful dismissal.