Restraint of trade clauses play a “vital role in protecting business interests”, according to Nikola Prestia, partner at HR Legal, and the case of Monarch Advisory Group Pty Ltd v Puxty (No 4) [2025] FCA 534 is an important reminder of how drafting matters.
“This case highlights the importance of drafting restraint clauses that are reasonable and tailored to protect legitimate interests, such as client relationships and confidential information,” Prestia said.
As part of the government’s pre-election budget, Treasurer Jim Chalmers announced the government planned to “abolish non‑compete clauses” for workers earning under $175,000 starting from 2027.
According to the Treasurer in his speech, non-competes are “holding too many Australians back from switching to better, higher‑paying jobs”.
“More than 3 million Australians are captured by these clauses, including childcare workers, construction workers and hairdressers,” Chalmers said.
“People shouldn’t need to hire a lawyer to take the next step in their career. Or permission from their old boss if they want to be their own boss and turn an idea into a small business.”
Under current legislation, employers are able to include restraint of trade clauses in contracts that can limit a former employee’s ability to provide services to clients of their former employer, carry on a competing business, or entice the clients to leave the former employer.
According to Prestia, these anticipated changes make it even more important that employers “seek advice on the implementation and enforcement of restraints”.
“The court’s acceptance of a 12-month restraint period as being reasonable in this case, aligning with the business cycle, demonstrates the need to link the scope and duration of restraints to commercial realities,” she said.
Monarch v Puxty
In this specific case, financial advice firm Monarch Advisory Group, which specialised in insurance advice, had employed Brett Puxty and Francis Coggan as financial planners in December 2018.
“Prior to Mr Puxty’s employment, there were extensive discussions regarding restraints in his previous employment contract and whether he could bring former clients to Monarch,” Prestia said.
“It was ultimately agreed that those clients would be excluded from Mr Puxty’s performance and incentive program. Meanwhile, both respondents’ employment agreements included a 12-month restraint clause to protect Monarch’s confidential information and clientele.”
Puxty and Coggan told Monarch in November 2019 that they were going to leave the firm, with the firm discovering in early 2020 that the pair were involved in a new business – Odyssey.
“After their departure, the respondents continued using their Monarch email accounts to communicate with clients, resulting in some clients transferring to Odyssey,” Prestia said.
This led to Monarch commencing proceedings in August 2020, alleging breaches of the post-employment restraint clause, claiming Puxty and Coggan:
- Solicited and accepted work from Monarch’s clients, both personally and through Odyssey.
- Used confidential information, including client lists.
- Encouraged one another to act in breach of the restraint clause.
In December 2020, Monarch entered into a business sale agreement for sale of its client book, which was later settled in 2021.
According to Prestia, three questions arose for the court to determine:
- Whether Monarch consented to Puxty breaching the restraint clause in his employment agreement.
- If not, whether the restraint clause is enforceable.
- If a breach occurred, what damages is Monarch entitled to recover.
“The court found that Monarch did not consent to Mr Puxty breaching the restraint clause; earlier discussions related only to his incentive program, not post-employment client retention,” she said.
“The court then considered the validity of the restraint clause in light of the act. It accepted that Monarch’s business relied heavily on client relationships and that a 12-month restraint was reasonable, given the annual renewal cycle of insurance policies. Accordingly, the restraint clause was found to be reasonable, valid, and enforceable.”
Prestia noted that it is “typically rare” that employers are successful in enforcing post-employment restraints against former employees, and it is “even rarer for an employer to be awarded damages against a former employee for such breaches”.
Despite this, the Federal Court awarded Monarch $270,593.60, though it did reduce the damages to account for clients, such as “family and friends”, who likely would have left regardless of any breach.
