Federal court declines to stay restraint challenge despite foreign jurisdiction clause

In the decision of Harman v Opus Recruitment Solutions – Australia Pty Ltd (Stay Application) [2024] FCA 1356, the Federal Court of Australia declined to stay proceedings brought by a former employee. The employee sought to challenge the validity of his post-employment restraints in his employment agreement and shareholders’ agreement despite the fact that the shareholders’ agreement contained a foreign exclusive jurisdiction clause.

What happened in this case?

In November 2021, Mr Harman entered into two agreements: an employment contract with Opus Recruitment Solutions – Australia Pty Ltd (Opus) and a shareholders’ agreement with Hexagon Topco Ltd (Hexagon) (a British-based entity that had ultimate control over Opus).

Both agreements contained post-employment restraints, but designated different jurisdictions for dispute resolution.

The employment contract stipulated exclusive jurisdiction in New South Wales, while the shareholders’ agreement provided that disputes would be exclusively resolved in the courts of England and Wales.

Following termination of his employment in February 2024, Mr Harman initiated proceedings in the Federal Court of Australia to challenge the validity of his post-employment restraints under the restraint clauses in the two agreements, and to seek declarations regarding his termination entitlements (on the basis that his termination should be characterised as a redundancy).

Hexagon, supported by Graphite Capital Co-Investment IX LP (Graphite) (a related British-based entity), lodged an application to stay Mr Harman’s proceedings in the Federal Court of Australia based on the exclusive jurisdiction clause in the shareholders’ agreement.

Federal Court denied the stay application

The Federal Court of Australia was ultimately satisfied that the stay application should be dismissed, such that Mr Harman could proceed to challenge the validity of the restraints under the employment contract and shareholders’ agreement in New South Wales.

In reaching this decision, the Court held that this case “involves interrelated parties, intertwined contracts and obligations arising from the same factual source and two (conflicting) exclusive jurisdiction clauses” and accordingly, even though Mr Harman had expressly agreed to enter the shareholders’ agreement with the foreign exclusive jurisdiction clause, (and notwithstanding that ordinarily Mr Harman should be held to his bargain), the Court held that the “unusual circumstances of this case” called for the discretion to be exercised.

Key takeaways for employers

This decision serves as a reminder to employers of the importance of well-drafted and properly structured employment agreements and post-employment restraints, particularly where there may be layered restraints across different contracts (including employment and shareholders’ agreements).

Read our full article to explore the case and its key takeaways for employers in greater detail.