A recently-published court judgement has shed light for the first time on the reasons why Elders lost a legal bid earlier this year to enforce a restraint of trade clause against former senior live export manager Tony Gooden and to prevent him from working for rival company Ruralco for a period of two years.
Mr Gooden was one of seven Elders live export division staff who resigned from the company on September 30 last year to establish a new live export division with rival company Ruralco.
At the time, then-Elders managing director Malcolm Jackman said that each of the seven departing staff members were bound to restraint of trade clauses in their employment contracts which banned them from working in competition with Elders for periods ranging from six months to two years. Elders would do “everything in its power” to see that those obligations were upheld, he said at the time.
In December, when Mr Gooden had almost finished serving out his three month notice period, Elders then commenced proceedings in the Supreme Court in a bid to enforce a clause in his contract which sought to prevent him from competing with “any Elders entity” for a period of two years.
However, on February 28 , Queensland District Court judge John Baulch ruled that the restraint clause could not be enforced for several reasons, mainly because it was “void for uncertainty” and was wider than what was necessary to protect Elders’ legitimate interests.
The ruling effectively released Mr Gooden from his previous employment contract and allowed him to commence employment with Ruralco’s new live export division, Frontier International Agri, from that point onwards.
The recent publication of Judge Baulch’s comments explaining his reasoning provide an instructive insight into the enforceability of restraint of trade contracts used by employers to prevent employees from joining competing companies.
Judge Baulch noted that Mr Gooden began working for Elders as a salesman in 1987 and remained with the company for 26 years, rising to hold positions including State Livestock Manager for Queensland, Executive Sales Manager and finally Senior Marketing Manager, International Live Export.
He noted that Mr Gooden had explained in his statement to the court that his concerns about Elders’ stability, including financial stability, had influenced his decision to tender his resignation in September last year.
In his reasons for dismissing Elders’ bid to uphold its restraint of trade clause, Judge Baulch explained that language used in the clause was “not sufficiently precise” and did not adequately define the way in which the clause might be breached, the relationships the clause sought to protect or the entities which might be breached.
For example, Judge Baulch said, the clause sought to prevent Mr Gooden from working with, representing or assisting any entity for two years that was in competition with “any Elders entity”.
When asked, Mr Jackman was unable to name all of the entities which fell under the expression “Elders Limited entity”.
Judge Baulch said the number of Elders entities was currently 70 and at one time had totaled 700.
“The expression ‘any Elders Limited entity’ extends the restraint to an unspecified number of companies engaged in various businesses and no one but the applicants in this case would possibly know the full extent of the restraint, because of the failure to name or otherwise describe the way in which the clause might be breached and types of relationships other than contractual relationships sought to be,” he said.
Not only was the scope of the clause so wide and ill-defined as to be without meaning, the terms were ‘very vague and undefined’.
He said the contract was “an uncertain one which could not be upheld by the Court”.
Judge Baulch noted that the two-year restraint clause included in Mr Gooden’s contract was significantly wider than restraint clauses imposed on any other employee, even those employees who were higher up the chain of command than Mr Gooden.
A large portion of Mr Baulch’sjudgment focused on the way in which the contract signed between Mr Gooden and Elders managing director Malcolm Jackman came into existence.
In explaining why he had required Mr Gooden to sign a two-year restraint clause, Mr Jackman told the court he had an appreciation of the commercial value and importance of Mr Gooden’s accumulated knowledge of Elders’ business and the strength of his relationship with customers, particularly in Indonesia.
Mr Jackman said he had been in positions of leadership and management all of his adult life and was able to build impressions of people. He said he used his ‘innate ability as a leader and manager to form opinions about the strength of people’s relationships’.
Mr Jackman explained that the question of the two-year restraint arose during a discussion surrounding Mr Gooden’s motor vehicle. He said Mr Gooden was ‘agitated’ because he perceived he was taking on more and more responsibility in the company, but his conditions were being diluted.
Mr Jackman told the court the two-year non-employment restraint was his idea, and he did not discuss it with any other officers of Elders Limited, or Elders Rural Services Australia.
The judge described Mr Jackman as a “very confident witness”: “He was confident that he could assess the value of an employee to an organisation in which he’d been involved, and he thought that that was one of his significant skills which equipped him to act as the chief executive officer of major enterprises.
“He was, however, unable to explain how this ability was exercised in respect of Mr Gooden, and it seemed to me that his evidence that Mr Gooden was an employee with special skills and knowledge was arrived at as a matter of instinct rather than real assessment.”
Mr Gooden, on the other hand, was careful and measured in his evidence, according to Judge Baulch, and “seemed to be at pains to make sure that he understood the question (during cross-examination) so that he did not fall into error”.
He said email correspondence between Mr Gooden and his employers concerning his contract reflected his dissatisfaction about the terms of his employment, particularly those concerning his motor vehicle (the details of Mr Gooden’s concerns regarding his motor vehicle were not specified in the judgment). Mr Gooden told the court that ultimately he signed the voluntary contract because he wished to put to bed rather than continue what were becoming “acrimonious discussions”.
Judge Baulch said that where the evidence between Mr Gooden and Mr Jackman differed, he preferred the evidence of Mr Gooden, because it was consistent with the correspondence tendered to the court.
Judge Baulch described the nature of the restraint negotiated by Mr Jackman with Mr Gooden, without any reference to any other senior executive of the company, as ‘very unusual’.
Judge Baulch said he accepted Mr Gooden’s explanation that part of the reason he gave up his attempts to negotiate a better agreement and decided to sign the voluntary contract was because of the superior bargaining position occupied by his employer.
Another key issue of relevance was whether information Mr Gooden had acquired during his time with Elders, and Elders had an interest in protecting, could be deemed as ‘confidential’.
The judge said several clauses in the employment contract between Elders and Mr Gooden provided “very substantial protection” for the employer absent the restraint clause.
He said Elders had a legitimate interest in protecting itself from competition, and the evidence showed that Mr Gooden had access to valuable information and had formed relationships with very significant Indonesian customers.
However whether that information had been properly described by Elders as confidential was ‘a little more difficult’, he explained.
“It is easy to accept that the information was information of value to the applicants (Elders), but much more difficult to accept it is properly described as confidential, because of Mr Gooden’s position in the chain of command, the fact that others had at least equal access to all of the information, and the fact that the information was information that changes fairly regularly.”
Judge Baulch said the “width of protection” that the employer had sought tobe written into the contract was the most important aspect of the case.
He indicated that Elders would have been better served had it constructed a restraint clause which aimed to prevent Mr Gooden from being employed in a position which competed with the employer’s interest in the live cattle trade, and for a reasonable time and in a reasonable area.
“By drafting the restrictive covenant by reference to corporate bodies rather than to employment activities, the employer has, in my opinion, cast a net much wider than was necessary to protect its legitimate interest in the cattle trade and particularly the live cattle trade.”
Further explaining why he believed the restraint clause was too wide in its scope, Judge Baulch later noted: “There was simply no evidence that Mr Gooden was involved in anything other than the cattle trade, and in my opinion the employer’s legitimate interests to restrain him began and ended with that trade.
“A restrictive covenant that prohibited him from being involved in wool-broking, general farm supplies, fertiliser, banking services and financial advice imposed a restriction which was much wider than was necessary to protect the employer’s legitimate interests.”
He also added that he believed a six month period of restraint, instead of the two-year period included in the contract, would have provided an adequate protection of the employer’s interests.
Judge Baulch said that while it would have been possible for the court to remove some words to amend the clause, it still would not have reached enforceable restraint, and the exercise would be a futile one.
A spokesperson for Elders told Beef Central this week that in relation to the case with Tony Gooden, “Elders respects the decision of the court and won’t be providing any commentary on the case going forward”.
Tony Gooden told Beef Central he was pleased to have the process resolved and believed “common sense had prevailed”.
“I am even more pleased to be able get on and work for Frontier International, a business dedicated to the livestock industry, which I very much enjoy and am passionate about,” he said in a statement.
“it is very rewarding to be actively involved in finding new opportunities abroad for Australian Livestock producers – from where I sit they have a great future ahead.”
Elders says investigation is continuing
Meanwhile, Elders says it has recently received the final report from an independent forensic examination of alleged discrepancies in the reporting of cattle valuations in its southern live export operation United Livestock Exports (ULE) and has provided the report onto “the relevant authorities”.
Then-Elders managing director Malcolm Jackman alluded to the discrepancies in the same Elders statement released on October 1 last year confirming the resignation of the seven live export managers.
The statement said Elders was investigating “certain discrepancies and issues” in cattle valuations in its live export division.
The use of the same statement to announce both the resignations and the investigation created the potential impression that both events were linked. In response to Beef Central’s questions seeking clarification on that issue after the statement was released, Mr Jackman said there “was no reason to link” the resignations and the reported discrepancies.
In a statement to Beef Central this week, Elders said it had now received the final reports from PPB’s investigation into ULE.
“Elders confirms it has now received final reports, and has notified and provided key findings to relevant authorities, to determine legal action. Elders does not wish to provide further comments at this stage, to avoid prejudice of any actions by authorities,” the statement said.