Restraint of trade case note: Brass balls

Real Estate is a tough business.  In the film version of the David Mamet play “Glengarry Glen Ross”, the head office motivator says “It takes brass balls to sell real estate”. 

In a case in the Supreme Court of New South Wales, delivered on 5 June 2009, Acting Justice Debelle, in Marlov Pty Ltd v Col [2009] NSWSC 501 once again shows how tough the real estate business is.  This case was one seeking an injunction to restrain a former employee from working for a competitor.  The Plaintiff, a real estate agent, claimed that the Defendant, a former employee, was acting in breach of his employment agreement when he was employed by a competitor.  A restraint of trade clause within the Defendant’s employment contract restricted him expressly for six months from working within 7.5 kilometres of the Plaintiff’s office after his employment with the Plaintiff ceased.  After a few days of having ended his employment, he commenced with another real estate agent which was within 2.1 kilometres as the crow flies but about 4.5 kilometres by road (at [6]).  The Plaintiff sought declarations and orders restraining the Defendant from working for the other real estate agency. 

In relation to various claims by the Plaintiff that the Defendant was soliciting clients, the Judge, as a question of fact, found that not to be the case.  The Judge then was called upon to consider the validity of the restraints found within the employment contract (at [18] and following).  His Honour relied on old authority to determine the reasonableness of the restraint both in the interests of the party for whose protection it was drafted and at the same time whether it was injurious to the public interest.  He referred to the well known decision of Lord Macnaughten found in Nordenfelt v Maxim Guns & Ammunition Co [1894] AC 535 at 565.  Also, reference was made to the rugby league case of Buckley v Tutty (1971) 125 CLR 353 at 376.  His Honour considered the special type of business which is a real estate agency in that it does not sell goods on a regular or frequent basis, but as a general rule has clients who only consult it on an irregular basis (at [25]). 

The part of the restraint which the Judge did not uphold was that part which restricted the Defendant from employment with existing agents within the area.  In the general area, 34 businesses of that description served that area of which 30 were just outside the 7.5 kilometres radius of the Plaintiff’s office.  Therefore, the Plaintiff was in competition with three to four other real estate agencies that carry on business within the radius (at [27]).  There was no suggestion that the Defendant had taken any confidential information with him nor that he had in any way set up the goodwill of the business.  He was one of six agents who worked for the Plaintiff.  The Defendant had undertaken not to solicit any of the Plaintiff’s customers for the six month period and it was shown he had no special relationship with any of them.  In all the circumstances, the Judge found that the restraint was not valid.  The Judge found that the restraint was a covenant against mere competition and did not protect any legitimate interests of the Plaintiff in its business connections or goodwill. Accordingly, he found that part which prevented the employment of the Defendant was invalid.

This case is consistent with many other cases in relation to restraint of employees being employed by another.  However, it cannot be used as authority in relation to the sale of businesses where the restraint of trade doctrine is more stringently enforced.