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IP Australia fee changes commence October 2016 – What do you need to know?

Thursday, August 25, 2016

Earlier this year, IP Australia conducted an extensive review of its fee structure in consultation with various stakeholders. The results of this review are now finalised and IP Australia has announced that new fees will apply from 10 October 2016.

 

The changes to trade mark fees may be significant to current trade mark owners, and companies that have been considering registering a trade mark.

 

Registering a trade mark grants the owner the exclusive right to use, authorise others to use, and prevent others from using, their trade mark in commerce over specific classes of goods and services.

 

Key Changes

 

The key changes to trade mark fees are:

 

1.     Increased application fees – the majority of trade mark application fees have increased by $130 per class, as a way of partially offsetting the removal of the $300 registration fee.

2.     Removal of the registration fee – previously, after an application was assessed a fee of $300 was payable to register the trade mark. There is no longer a fee for registration.

3. Decreased Madrid import application – the Madrid import application facilitates international registration in countries which are signatories to the Madrid Protocol. The fee for a Madrid Application will decrease from $500 to $350 per class (note this is effective from 28 October 2016).

4.    Increased renewal fees – trade marks must be renewed every ten years, the renewal fees will increase from $300 to $400 per class.

5.      Removal of opposition fees – there will no longer be a fee payable to oppose a non-use removal application, or to file a written submission instead of attending an opposition hearing.

 

Overall the changes are positive for current and potential trade mark owners. While the application fee has increased, the removal of the registration fee will decrease the total fees paid to register a trade mark.

 

Additionally, the changes to the opposition fees may make it cheaper and easier to defend against certain applications to remove a trade mark from the register.

 

The full list of IP Australia fee changes can be found at https://www.ipaustralia.gov.au/about-us/news-and-community/official-notice/fee-changes-ip-australia-fee-review-update.

 

How does this effect you?

 

Current trade mark owners should review their trade mark renewal dates. Any trade marks that are due to expire before 9 October 2017 should be renewed before the fee changes take effect.

 

Potential trade mark registrants might consider holding off registering until the new fees take effect. However, if you trade overseas you should also consider utilising the now cheaper Madrid import applications to provide some overseas protection to your brand.

 

Please contact our office if you require assistance with protecting, enforcing or commercialising your intellectual property.

 

Authored by Senior Associate, Carina Zeccola with Law Clerk, Tim Dingwall.

Trade Mark Now the Least of Dick Smith’s Issues After Mite-y Long Battle Ends in Federal Court

Friday, August 19, 2016

On 11 February 2016, the Federal Court handed down its judgment in the case of Dick Smith Investments Pty Ltd v Ramsey [2016] FCA 939. The decision marked the end of the latest chapter in the trade mark battle between Dick Smith’s OzEmite and AussieMite. While this dispute has been in the media through its various stages, the Federal Court’s decision highlights the requirements for the use of registered trade marks.

 

Background

 

Parts of this drawn out saga have featured in the media for well over a decade. In 1999, Dick Smith Investments (DSI) registered the name “OzEmite” as a business name in New South Wales, with the intention of creating an Australian owned and made yeast spread product to rival the now American owned Vegemite. DSI then applied to register OzEmite as a trade mark.

 

In January 2001, Roger Ramsey released his own yeast spread to combat Vegemite, under the name “AussieMite”. Ramsey filed an application in 2011 for the removal of the OzEmite trade mark for non-use, since the trade mark had not been used since its application in 1999. In mid-2012, OzEmite was made commercially available for the first time, but in February 2014, the Registrar of Trade Marks upheld Ramsey’s application to remove the OzEmite trade mark. DSI appealed the removal in the Federal Court.

 

Issues Before the Court

 

Under the Trade Marks Act 1995 (Cth) (the Act), a non-use application may be made to remove a trade mark, if that trade mark has remained registered continuously for a period of 3 years, and has not been used during Australia in that period (the statutory period). The two issues before the Court were:

  1. Whether DSI used the OzeMite trade mark in Australia during the statutory period; and
  2. If the trade mark was not used during the statutory period, whether the OzeMite trade mark was not used because there were circumstances that were an obstacle to the use of the trade mark.

DSI argued that the trade mark had been used during the statutory period for the purposes of the Act, during what they described as two “pre-launch publicity” instances. While the Judge doubted that the term “pre-launch publicity” was accurate, she agreed with this argument, stating that the purpose of the publicity “was to revive, if not maintain, interest in the OzeMite product.”

 

The Judge also found that DSI showed “an objectively ascertainable commitment” to producing a “vendible” product which would carry the mark, and that OzEmite remained under development during the statutory period.

 

With regard to the second issue of whether there was an obstacle to the use of the trade mark, DSI claimed that they suffered setbacks due to difficulty in sourcing “spent brewer’s yeast,” a key ingredient in vegemite and other yeast spreads. The Judge said in response to this “I am satisfied that for some time the Dick Smith companies did have trouble finding spent brewer’s yeast, but I am not satisfied that that difficulty presented itself as an obstacle to the use of the mark during the statutory period.” The Judge continued on to state that to qualify as an obstacle within (the meaning of the Trade Marks Act), the circumstances had to meet three conditions:

  • First, they had to be “of a trading nature”.
  • Secondly, they had to “arise from or comprise events external to the registered owner in the sense of not having been brought about by the voluntary act of the owner”; and
  • Thirdly, there must be events “capable of disrupting trade in the area of commercial activity in which goods bearing the registered owner’s mark are traded”.

 

Although the objective of creating a product similar in taste and texture to Vegemite was of fundamental importance to OzEmite, the obstacle created did not arise from or comprise events that were external to the owner or independent of its will. While DSI was not successful in establishing that there was a sufficient obstacle, they were still successful in overturning the removal of the trade mark by establishing sufficient use of the trade mark during the statutory period.

 

As this case shows, the law of trade marks can be difficult to navigate, and disputes over trade marks can be costly and time consuming. Our Intellectual Property team has the knowledge and expertise to assist businesses, government, and not for profits in making trade mark applications a cost-effective and smooth process.

Board Meeting Minutes – Take a Minute to Find Out Your Obligations

Thursday, August 11, 2016

 

Minutes are a physical record of decisions made and actions agreed upon in a meeting, and are often relied upon for future reference. The Corporations Act 2001 (Cth) (the Act) states that “a minute that is so recorded and signed is evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proved”. For this reason, minutes must be accurate, informative and easy to navigate, as they can provide crucial support in the event of an audit or future legal proceedings.

 

Requirements for a Company

 

The Act stipulates requirements for organisations in regards to recording and signing minutes. These requirements include:

1.         A company must keep minute books which it records within one month.

(a) proceedings and resolutions of meetings of the company’s directors and members;

(b) resolutions passed by directors or members without a meeting; and

(c) in the case of a company with only one director, the making of declarations by the director.

2.         The company must ensure that minutes of a meeting are signed within a reasonable time after the meeting by 1 of the following:

(a) the chair of the meeting; or

(b) the chair of the next meeting.

 

Requirements for Incorporated Associations

 

Similar rules apply for incorporated associations in the ACT, pursuant to the Associations Incorporation Act 1991 (ACT) (Associations Act) and the Associations Incorporation Regulation 1991 (ACT) (the Regulations). The model rules under the Associations Act require the secretary of an association to keep minutes of:

 

(a) all elections and appointments of office-bearers and ordinary committee members;

 

(b) the names of members of the committee present at a committee meeting or general meeting; and

 

(c) all proceedings at committee meetings and general meetings.

The minutes of proceedings at a meeting must be signed off either by the person presiding at a meeting or by the person presiding at the next meeting.

 

Items to Include in Minutes

 

Minutes of meetings should preferably include the following information:

  • Name of the organisation
  • Date, time and location of the meeting
  • Confirmation that a quorum was present
  • List of people present/apologies
  • Any resolutions passed or delegated
  • A record of what actions were taken and what was accomplished, not a record of conversations.

 

Minutes should also contain a statement confirming if the previous meetings minutes have been read and approved. When the meeting agrees that the minutes are correct and a true record of the meeting, the Chair should sign the minute, as well as date and initial each page. Once this has been completed, no more alterations can be made to the minutes.

 

 

To ensure compliance with the legislative requirements, it is good practice for corporations to have in their by-laws a policy which sets out what information must be included in their minutes and how to record them. A policy should also be maintained which among other things, sets out:

  • how long the minutes should be kept
  • who is responsible for the minutes
  • the timing for completion and distribution of minutes
  • processes to ensure compliance with the relevant legislation for taking, keeping, and approving financials.

Our Corporate and Commercial Advisory Team can assist you with ensuring that your legal obligations are met with keeping minutes and help you with implementing policies to do so, as well as with your other governance obligations under the Corporations and the Associations Acts.

Estate Planning for Foreign Assets

Thursday, August 04, 2016

It is now becoming more common for people who live in Australia to have assets overseas. If you own assets overseas it is important to be aware that each jurisdiction has its own legal system and tax laws. You should not assume that the succession laws and tax regimes you are familiar with in Australia will apply in relation to any overseas assets you own.

As a general rule, we recommend seeking specialist legal and financial advice from professionals who have an understanding of the succession and taxation laws in the country in which the asset is located.

Disposing of foreign assets

It is an option to dispose of your foreign assets prior to death and send the proceeds to Australia or to another jurisdiction. However, you should consider the time available and the financial implications for this strategy, for example adverse taxation consequences (such as stamp duty, capital gains tax and foreign investment tax) and currency exchange rates.

Separate Wills

Assuming that you do not plan to dispose of your overseas assets prior to your death, it is generally recommended that you have a separate Will in the relevant jurisdiction that deals with the overseas assets. In other words, you would have an Australian Will to deal with your estate not including your overseas assets and a second Will in an overseas jurisdiction to deal with the distribution of your overseas assets and which complies with the relevant laws in that jurisdiction. This will allow you to choose an appropriate executor in that jurisdiction to deal with issues such as the local procedures for probate or administration of estate and any taxation implications (for example whether the foreign country imposes an inheritance tax).

Summary

Testamentary laws can be complex, and are further complicated by the interrelation of foreign legal systems and taxation laws. As a testator with foreign assets, the starting point for you is to:

·         be aware that different laws will apply to your assets held in foreign jurisdictions;

·         make your lawyer and financial advisor aware of these assets and where the assets are located; and

·         make your lawyer and financial advisor aware of what your intentions are for the assets in the event of your death.

We recommend you seek specialist legal and financial advice from professionals who have an understanding of the succession and taxation laws in the country in which the asset is located. Your lawyer and financial advisor will then be able to give you specific advice about your estate planning options based on your individual circumstances.

Our estate planning lawyers have the knowledge to guide you in creating an estate plan that suits your individual needs. If you would like to discuss your estate plan, please give us a call.

Brumbies in Crisis

Thursday, August 04, 2016

At what point does it become obvious that an organisation is in crisis and that urgent action is required.

The litany of governance issues which have beset the Brumbies organisation in the last 12 months reads like a fiction story.  That these are real events in the history of a great organisation is a demonstration of an abject failure of governance by the Board, led by the Chair.

For the Chair, it is time to accept responsibility and for the good of the game, and as the leader of the organisation, to step down.

It is with some distress that I have come to this point and I should state that I do so with some background in the Brumbies and Australian Rugby generally.  My background is well known as a player, administrator at state, national and international level and is set out below.

With this background in mind, my opinion of the governance failures (in no order) are summarised as follows:

  1. Seeming inability to control the actions of the CEO;
  2. Referral of the KPMG report regarding the activities of the organisation with scan regard to the Chair's membership of the Union's Finance Committee throughout the period covered by the report. (Question - if he didn't know about the deal(s) at the time then why not? Did he ask?? If he did ask and was not satisfied with the answers what was his response and why did he remain a member of the committee - this has never been addressed or answered to the satisfaction of members and stakeholders);
  3. Appointment by the Chair of a former professional associate of the Chair to a position on the Finance Committee (I am told as Chair of the committee) without reference to the members of the Board - In light of 2 above this constitutes a real or perceived conflict of interest;
  4. Absence of organisational integrity associated with the referral of the report to the AFP which was made without the prior referral to former long standing officials of the organisation (and especially as they had negotiated the deals) or UC. I am advised, by the parties that they were willing to answer any questions had they been put to them. The pre-emptive referral of the report fails the fairness test at any level and I suspect will fail scrutiny of the report itself;
  5. Breakdown of stakeholder relations throughout the organisation most especially with UC;
  6. Breakdown in the relationship with the ACT Government and its officials which have long supported the organisation no matter the political party in power;
  7. Disaffected members at all levels of the organisation (season tickets holders of long standing, Foundation Members and generally those attending games;
  8. Poor communication to stakeholder groups by the Chair;
  9. Chair overseas on holidays at a critical time for the organisation both on and off-field when leadership was critical;
  10. Void in leadership especially by the Chair during critical time when leadership was required by the members and the broader stakeholder group;
  11. Overseeing the shambolic negotiations regarding the termination of the CEO;
  12. The retention of a Director for many months who had been subject to comments from a Judge of the Supreme Court as to his honesty and who was the Director of 2 failed companies owing money to the ATO and for employee superannuation (since recently resigned after much resistance from the Chair);
  13. Formation of a Nominations Committee without transparent Terms of Reference and by appointing members with little if any experience in the administration of the game or high performance as it relates to Rugby and proceeding without proper, if any, communication with his Board;
  14. Leaving out long standing partners to "carry the can" by not negotiating a complete end to the legal dispute with the CEO (which continues) to the on-going cost of those who and which remain involved. This on-going dispute continues to cause damage to the relations between the parties involved;
  15. The Union continues to incur legal costs associated with the dispute as a direct consequence of the settlement strategy adopted by the Chair and the Board which did not finalise all the outstanding issues being limited to a resolution of the dispute between the Union and the former CEO;
  16. The creation of Brumbies TV at considerable cost to the Union with an apparent failure of the assumptions of the business plan to support the additional expenditure;
  17. The failure to commence the recruitment process for the CEO in a timely manner. The delay indicates the absence of understanding by the Board relating to the critical times in sponsors budgetary processes and will create an enormous challenge to an incoming CEO;
  18. An organisation which fails to apply a values standard to decisions - there is no Values Statement on the Brumbies Home Page - it seems obvious that decisions are made without reference to the values long important to the organisation and its standing in the community;
  19. In spite of additional revenue of in excess of $1.4m received from the ARU, it appears the budget projections will not be achieved and again the organisation will most likely post a deficit. This will occur in spite of having successful on-field performance which included a home qualifying final.

The HPU, Community Rugby, coaching and development staff have continued to deliver in what must have been difficult circumstances.  The Brumbies on-field performance is remarkable considering what was going on around the organisation.  They should all be commended. 

I can summarise the governance and organisational breakdown in one statement –

“The Brumbies do not treat those associated with the organisation in the manner they have been treated.”

All of this should also be seen in the broader context of the crisis of rugby in this country. The current funding model is not sustainable. This is generally “code” for less funding from and more control by the governing body (the ARU). The “code” however generally excludes NSW and Queensland from the equation – we will see.

The ARU are in the process of either taking control or encouraging private investment.  The absence of a sponsor for the June Test series against the English and the cessation of the sponsorship deal by Asteron Life for the Super Competition at the end of the current season, will place further pressures on the ability of the ARU to fund the Super Unions.

Yet the Brumbies remain in a stalemate with an organisation (UC) and other stakeholders which if not resolved and relationships not re-established will result in the loss of control to the ARU as the only available option.

It need not be the case.

I understand it has been made very clear to the Chair some months ago that stakeholders have lost confidence in his ability to lead the organisation.  While he stays, crisis will continue and will not be resolved.  The actions of the Chair of the Essendon Football Club are offered as an example and who for the good of the club resigned. I implore the current Chair of the Brumbies to follow this example and go – .

 

Peter J McGrath

4 August 2016

 

For the record the writer provides the following:

Director the ACT & SNSW Rugby Union 1994 to 2005 (Chairman 1999 to 2005);

Director of the Australian Rugby Union 2005 to 2012 (Chairman 2007 to 2012)

Member of the Executive Committee of SANZAR 2006 to 2012 (Chair 2006/2007 and 2012)

Member of the iRB (now World Rugby) Council and Executive Committee (2008 to 2012)

How far is too far? Protecting the Privacy of Australians during the 2016 Census

Thursday, July 28, 2016

With the census just around the corner many privacy advocates are questioning the motives of the Australian Bureau of Statistic (ABS), in not only collecting but also storing personal data. Recent revelations that the ABS has already used census data for more than just administrative purpose, has raised concerns about the security of the personal data being collected.

 

The ABS has used personal data collected in the census to compare with data held by other government agencies since the 2006 census. Duncan Young, Head of Census with the ABS said that the personal data is anonymised through the use of computer codes and no staff members ever see identifiable information. The key concern of privacy advocates, including the Australian Privacy Foundation, is the illegitimate purpose for which valuable personal data could be used.

 

The Australian Census is conducted every five years in accordance with the Census and Statistics Act 1905 (Cth) (the Act). Pursuant to section 8 of the Act, the ABS may collect ‘statistical information in relation to the matters prescribed’ by regulation. In previous years this statistical information has included:

 

(a)          Name;

(b)          Sex;

(c)          Age;

(d)          Personal relationships with others in same household;

(e)          Marital status;

(f)           Religious denomination;

(g)          Citizenship;

(h)         Country of birth;

(i)            Educational background;

(j)            Ancestry, including names and country of birth of parents;

(k)          Employment status; and

(l)            Health, including the need for assistance with personal care, movement or communication.

 

The storage of this data by the ABS puts the privacy of Australians at risk. While the ABS claims that every possible security precaution is taken with the collection of this personal information, there are countless instances of government security breaches around the world that result in the release of personal data. For example, in 2015 the United States Office of Personnel Management reported a major breach of personal data by suspected Chinese hackers resulting in the theft of social security numbers, names, dates and places of birth, and addresses. The theft affected the personal data of as many as 21.5 million Americans.

 

The potential backlash from Australians not wanting to risk their personal data could be detrimental to the integrity of the census. With many calling for a boycott of the census and others suggesting not including personal data or including false data, the census has the potential to be rendered useless to statisticians.

Commonwealth Reporting Requirements for Property Transactions in New South Wales

Monday, July 25, 2016

From 1 July 2016 it is a requirement of the Office of State Revenue to collect and report on transfers of freehold or leasehold interests in real property in New South Wales to the Commissioner of Taxation. The purpose of the reporting is twofold. Firstly, to establish a National Register of Foreign Ownership of Land Titles. Secondly, to provide information to the Australian Taxation Office regarding all transfers of property.

The mandatory reporting is a result of an amendment to the Taxation Administration Act 1953 which allows the Commissioner of Taxation to require certain entities to provide information about transactions that could reasonably be expected to have tax consequences for other entities.

Property details, transactional information, identity information and foreign identity details of the transferee and the transferor are required under the amendment to the legislation. This information will be collected in two ways:

(a)    For Vendors or Transferors, the information will be collected through the provision of a Land Tax Clearance Certificate (LTCC)to the purchaser. In order to obtain the LTCC, the Vendor will need to complete the required Vendor information.

 

(b)    For Purchasers or Transferees, the information will be collected during the stamping process. Each Purchaser will be required to complete a Purchaser Declaration form (PDF)and provide supporting identification documents. The information provided in the PDF is required to process your stamp duty payment.

What does it mean for me?

If you are buying property in New South Wales, the short answer is additional paperwork. You will be required to complete a purchaser declaration form and will also need to provide a certified copy of your birth certificate, passport or citizenship certificate. 

If you are selling property in New South Wales, you will have the additional cost of a Land Tax Clearance Certificate which you will be required to provide to the purchaser prior to settlement.

 

If you require assistance purchasing or selling a New South Wales property, please contact a member of our conveyance team.

"What Is A Power Of Attorney, And Do I Need One?"

Thursday, July 21, 2016

A Power of Attorney is a formal deed governed by the Power of Attorney Act 2006 (ACT). A Power of Attorney is a binding legal document which gives one or more people the legal authority to make decisions, and do certain things on your behalf, but it does not remove your rights to do these things. It is a common misconception that the Attorney needs to be an “Attorney” (i.e. a lawyer) but he or she does not. The Attorney can be anyone over the age of 18, however it is important that you trust them implicitly.

Types of Powers of Attorney

A Power of Attorney does not have to give blanket control to do anything or everything. There are different options available and limitations that you can place on each. They can be broadly categorised into the following types:

1.       General Power of Attorney.

2.      Enduring Power of Attorney.

General Power of Attorney

A General Power of Attorney is usually created for a specific purpose, with either specific or general powers given to the Attorney.

Examples of where a General Power of Attorney is useful are as follows:

(a)      if you are going overseas for work or on holiday and are in the middle of a business or property transaction that requires your signature; or

(b)       if you are in hospital for an extended period of time and finding it difficult to manage your affairs.

 

Some of the powers you may confer on your Attorney are:

(a)          execution of documents on your behalf generally;

(b)          general dealings with banks, insurance companies etc. on your behalf; and

(c)          any other specific powers, for example execution of a specified document on a one off basis.

General Powers of Attorney are only valid while a person has legal capacity, and are immediately revoked upon loss of legal capacity. Legal capacity means the ability to fully understand the nature and effect of the document you are signing.

Enduring Power of Attorney

An Enduring Power of Attorney remains valid even if a person loses legal capacity as a result of disability or illness. However, you can revoke it at any time, providing you have legal capacity.

When creating an Enduring Power of Attorney, you give your chosen Attorney or Attorneys the capacity to make decisions in relation to certain aspects of your affairs. You choose whether or not to give your Attorney of Attorneys power to make decisions in relation to your:

(a)          finances;

(b)          property; and/or

(c)          health  

You can choose, one, two or all of these aspects and can also choose whether the power takes effect immediately or only upon loss of legal capacity.

Why have one?

A Power of Attorney can be a safety net that enables your affairs to be dealt with by someone you trust in situations where you can’t effectively manage them yourself. You might want to think about creating a Power of Attorney in circumstances such as the following:

(a)          where your health is failing;

(b)          if you are going in for major surgery;

(c)          if you are going overseas; or

(d)          as a general precaution.

If you intend to put an Enduring Power of Attorney in place, you must do so while you still have full legal capacity.

Our estate planning lawyers have the knowledge to guide you and the skills to reflect your intentions clearly in creating your General Power of Attorney or Enduring Power of Attorney.

 

"But why should I register my lease?"

Friday, July 15, 2016

There is no denying that entering in to a new commercial or retail lease can be a costly and time consuming exercise for both the tenant and landlord. Once negotiations and signing of the lease are out of the way, further costs may arise in order to register a lease over the title of the property. As an example, a landlord may be required to prepare and register a subleasing plan or a deposited plan in order to adequately define the part of the land that is being leased, and the tenant is liable for the Land Titles Office fees for lodgement and registration of the lease.

A common question we are asked is “Do I need to register my lease?”. Our answer is more often than not “yes, you should register your lease” and here is why.

1.         Generally speaking, a tenant has the most to gain from Lease registration. By registering their lease a tenant gains a registered interest over the title of the property, which they can claim on if necessary.

2.         If the lease is properly made and executed, the lease will be binding on both parties regardless of whether it is registered. However, in ACT and NSW only leases with a term of 3 years or less are automatically afforded statutory protection under the relevant Land Titles legislation without being registered on the title (note that the length of short term leases that are provided statutory protection may differ depending on which state or territory legislation applies to your lease). This means that a lease of a term greater than 3 years (including any options to renew) should be registered in order to gain statutory protection and a registered interest on the title.

3.         If a lease for a term greater than 3 years is unregistered and a bank holds a registered interest over the title, the bank or mortgagee is not obligated to recognise the tenant’s right to occupy the property unless they have consented to the lease. The process of registering a lease includes contacting the mortgagee for consent and requesting production of the title, meaning a record of consent is obtained. Mortgagees will often pass on their costs for consenting.

4.         If a lease is not registered, any competing interest that is registered over the title will take preference to the unregistered lease.

5.         For a landlord, allowing a lease to be registered on their title is of no detriment and has little effect. Having said that, it may add value to their property, for instance in the event that a landlord was attempting to sell their property, prospective buyers will want to be aware of all potential interests over the property. If applicable, the land may also be of more value if it has already been surveyed or identified using a subleasing plan or deposited plan, allowing a prospective buyer to enter into multiple leases over the premises.

 

It is important for landlords to keep in mind that if a tenant requires the lease to be registered, the landlord has an obligation to attend to registration of the lease. Tenants should also be aware that they will be required to pay the costs of registration of the Lease, currently $135.00 in the ACT and $136.30 in NSW, and factor this in to their costs for entering into a new lease. Both parties should ensure that, when signing a lease, it is in a form that will be acceptable to the relevant Land Titles Office when it is sent for registration.

 

Please contact our office if you require assistance or advice in relation to your existing or proposed commercial or retail lease.

Employment Contracts: Restraint of Trade Clauses

Monday, July 11, 2016

Restraint of trade clauses are often included in employment contracts, to restrain employees from certain activities which may threaten the business of the employer. Restraint of trade clauses are difficult to enforce, and may only be enforced to the extent necessary to protect the employer’s legitimate business interests.

 

The types of actions that employers often seek to restrain include:

 

(a) using confidential information or documents of the employer;

(b) soliciting or “poaching” clients or other employees of the employer;

(c) starting a business which is in direct competition with the employer; and

(d) commencing employment with a competitor of the employer.

 

In New South Wales, the Restraints of Trade Act 1976 (NSW) governs the validity of restraint of trade clauses. In the Australian Capital Territory, this is governed by common law (case law).

 

Restraint of trade clauses must be reasonable in protecting the employer’s interests, which is assessed with reference to the particular circumstances on a case-by-case basis. Often restraint of trade clauses are drafted as “cascading clauses”, which allows the clause to be written down in the event that the maximum is not considered reasonable. Consideration as to whether a clause is deemed reasonable includes an assessment of the following:

 

(a) Is the geographical area too broad? Does the clause extend beyond the employer’s legitimate business catchment?

(b) Is the time restriction excessive?

(c) Is the type of conduct restrained reasonable?

(d) Does the clause unnecessarily restrict the employee from being able to make a living?

 

In some circumstances, restraint of trade clauses will be considered to be reasonable and enforceable. This is particularly the case where the business of the employer involves confidential information, or where the employee has actively sought to “poach” clients of the employer.

 

In the event that there is an enforceable restraint of trade clause which has been breached by a former employee, the employer should take action early in order to protect its interests. This may involve:

 

(a) writing to the former employee to instruct them to immediately cease all conduct inconsistent with their obligations under the restraint of trade clause;

(b) applying to the Court for an injunction in order to prevent the former employee from taking any further action; and/or

(c) commence legal proceedings in Court to recover damages.

 

If you are an employee or an employer with questions about restraints of trade, please contact Griffin Legal for more information and advice specific to your circumstances.

 

                   

               
       

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