Case proves restraint of trade sometimes enforceable

31 Jan 22

Column written by John Farrow and published in the Otago Daily Times on 31 January 2022.

There has been a lot of recent publicity about Tova O’Brien’s restraint of trade case. In October last year Ms O’Brien resigned from her position as political editor with Discovery to take up a position with MediaWorks Radio as a host for a yet-to-be-launched radio show.

Discovery’s predecessor was MediaWorks TV which produced shows such as Newshub and The AM Show.

Ms O’Brien’s employment agreement with Discovery included a restraint of trade provision, preventing her from working in any business or activity in competition with MediaWorks for a period of three months.

Ms O’Brien contested the restraint of trade. Settlement negotiations were unsuccessful and she then applied to the Employment Relations Authority for a determination that the restraint of trade was unenforceable.

The Authority disagreed and ordered that she comply with the restraint of trade for a reduced period. The original three-month restraint of trade was reduced by five weeks to allow for annual leave taken and the adjournment of Parliament on December 19, 2021. This means she cannot start her employment with MediaWorks Radio until March 14.

The starting point when looking at any restraint of trade is that they are contrary to public law and not enforceable. That is because they are anti-competitive. To overcome this, Discovery had to establish it had a legitimate proprietary interest to protect and that the restraint was no wider than was reasonably necessary to protect that interest.

The Authority found the legitimate propriety interests were:

  • Confidential information including editorial priorities and future plans, identities of confidential sources and team salaries;
  • Business relationships including a key relationship with Reid Polling;
  • As Ms O’Brien was employed in a ‘‘key role’’, this contributed to her reputation in the New Zealand market.

The Authority then considered whether the restraint of trade was reasonable, in terms of duration, scope and geographical limit. The duration of a restraint of trade normally references the amount of time the employer needs to respond to the employee moving to a competitor. The Authority considered whether the total period of the restraint should include the notice period, when Discovery had the ability to put Ms O’Brien on garden leave and therefore remove her from access to confidential information and contact with key relationships.

The Authority took into account the adjournment of Parliament and that Discovery had, within days, appointed a new political editor while Ms O’Brien was on annual leave. The Authority exercised its discretion and modified the duration of the restraint of trade to seven weeks (a reduction of five weeks).

The Authority found the geographical limit (New Zealand-wide) was reasonable and enforceable.

Perhaps the key dispute in this case was whether Discovery and MediaWorks Radio were in competition. Discovery called expert evidence from Dr Gavin Ellis who concluded there was a degree of competition between Discovery and MediaWorks Radio in the morning time-slot (when The AM Show ran).

MediaWorks Radio argued that while there was competition for audience in the margins, that was neutralised by radio and television breakfast audiences sticking to their preferred medium and that the pool of potential advertisers was fundamentally different.

The Authority, however, accepted the evidence that if Ms O’Brien started work with MediaWorks Radio, she would be in competition with Discovery.

The case has prompted comment from Labour MP Helen White, who has been campaigning to ban employers from imposing restraints of trade on many workers. In her maiden speech to Parliament in December last year, she said restraint of trade clauses had the effect of suppressing wages. Competition reinforces growth, including income growth.

Ms White has been working on a Private Members’ Bill on banning restraint of trade clauses for lower-paid workers who do not have the ability to challenge them, often resulting in low-paid workers being unable to move to a competitor who might offer them better wages.

In Ms O’Brien’s employment agreement, however, it was clearly agreed she occupied a key role. The agreement further explained that because of this, Discovery viewed the restraints as necessary to protect its business relationships and confidential information.

Ms O’Brien had the benefit of legal advice before signing the employment agreement. By the time she negotiated the role of political editor, she was a well-established journalist with a significant reputation. While not necessarily negotiating from an equal footing, she was negotiating from a position of some strength.

Those considerations are relevant to whether the restraint is reasonable. Workers on the factory floor, for example, don’t have the same access to confidential information and business relationships, and so restraint of trade provisions are much less likely to be enforceable.

I often hear employers complain that the restraints they include in their employment agreements are not worth the paper they are written on. Ms O’Brien’s case would seem to suggest otherwise. However, each case is specific to its facts and, at the end of the day, there must be a genuine proprietary interest requiring protection.


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Link to ODT article here.

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John Farrow