Legal battle between Seven and Ten over poached CEO will test power of employee restraint clauses

The legal stoush between Seven Media Group and Ten Network over Ten’s poaching of former Seven ad sales executive James Warburton is likely to again test the ability of restraining clauses in employment contracts that seek to prevent executives jumping to other companies.

In an explosive statement of claim lodged with the New South Wales Supreme Court, Seven claimed it had offered Warburton the job as chief executive of Seven Media, only to have him jump ship to take up the top post at Ten.

While Ten says it is confident that Warburton will start his new job at Ten in July, Seven claims that under its management equity plan Warburton cannot work for a rival for 15 months.

The parties will appear in Court today to start what looms as a pitched battle between Kerry Stokes’ Seven and Ten, which is currently being run by Lachlan Murdoch.

But employment lawyers will also looking at how the Court views the restraints the Seven has sought to place on Warburton.

While his seniority could justify a 15-month restraint, courts have tended to take a dim view of lengthy restraints in recent years, with restraints of longer than 12 years becoming less common.

Workplace lawyer Andrew Douglas of Macpherson + Kelley Lawyers says the reasonableness of a restraint is typically judged on the employees position, role and their access to key company data.

“The length of the restraint will turn on that person’s goodwill or access to intellectual property,” Douglas says.

Salary will also be a consideration. Restraining a worker on $50,000 a year could cripple their earning capacity, but it would be more reasonable to assume someone on $300,000 could survive for this period.

The nature of the restraint will also be examined, and the circumstances of the business. If the employer was a hairdresser, which sees its clients every six-to-eight weeks, a six month restraint would be unreasonable.

However, there have been recent examples of 18-month restraints being approved by the courts where in certain circumstances.

Douglas says there are a few key considerations for employers drawing up restraint clauses.

Firstly, he recommends putting them in deeds separate to the actual employment contract.

Secondly, he recommends make sure that the restraints are the responsibility of the employee, so that the employee realises they personally bear the responsibility and costs of breaching them.

Finally, ensure that restraints are updated when the nature of a person’s job changes – if for example, they move into a new area of geographic territory. While an employment contract can be drafted to allow for changing job circumstances, restraints will only be considered reasonable if they are attached to a specific role.