What a business can (and can't stop) when a client list goes walking

Almost every business has a person like her: the manager who is the face of the place, who knows every client by name, who holds the relationships that keep the bookings full. So what happens when that person resigns, takes the client data with her, and opens a competing business down the road taking several of your staff with her?

A recent decision of the Supreme Court of New South Wales, Body Sculpting Clinics (Charlestown) Pty Ltd v Palmer [2026] NSWSC 242, works through exactly that scenario. The result is instructive precisely because it was mixed: the business stopped some things and failed to stop others. For any owner who relies on confidential information, client relationships and key staff, the case is a practical lesson in what restraints actually hold up and what it takes to enforce them.

Restraints, confidential information and injunctions

The starting point in Australian law is counter-intuitive: a restraint of trade, a clause stopping a former employee from competing, soliciting clients or poaching staff, is presumed void as contrary to public policy. It will only be enforced to the extent it is reasonably necessary to protect a legitimate business interest, such as confidential information, client connections or a stable workforce. A restraint that reaches further than necessary risks being unenforceable.

New South Wales has an unusual safety net. Under section 4 of the Restraints of Trade Act 1976 (NSW), a court can “read down” an overly broad restraint and enforce it only so far as it is valid, but a business should never bank on a court rewriting a clause that was drafted too widely.

Separately, when a business wants to stop conduct immediately before a full trial, it asks for an interlocutory (interim) injunction. To get one, it must show a serious question to be tried and that the “balance of convenience” favours an order. Crucially, the business must usually give the Court the “usual undertaking as to damages”: a promise to compensate the other side if the injunction turns out to have been wrongly granted. If the business cannot realistically back that promise financially, a court may refuse the injunction even where the underlying case looks strong.

The facts

Body Sculpting Clinics (Charlestown) Pty Ltd (BSC Charlestown) ran a Body Sculpting Clinics franchise, offering non-surgical cosmetic and body treatments at Charlestown Square. Ms Breigh Palmer was its Clinic Manager and then its “Nominated Operator” and sole director, and a company she owned held 25% of the shares. On the evidence, she was effectively the face of the business – running front of house, conducting consultations, selling treatment packages, supervising staff and holding the client relationships. Her 2022 employment agreement contained confidentiality obligations, a non-solicitation clause covering clients and staff, and a non-compete clause with a cascading “non-compete area” extending up to a 50-kilometre radius.

From early 2025 the relationship between Ms Palmer and the franchisor’s principals soured. In September 2025, amid concerns about a regulatory notice and the clinic’s finances, Ms Palmer emailed herself data from the clinic’s “Mindbody” system, a list of nearly 4,000 clients and leads, plus treatment and booking details (the “Leads List”). She resigned in October 2025. Within a short window, several other staff resigned too. By February 2026 a new and very similar business, Defined Aesthetics, had opened about 9.7 kilometres away, run by Ms Palmer’s partner, with Ms Palmer working there and former BSC staff alongside her.

The Court was careful to say that its summary of the evidence was not a set of findings – this was an interim hearing, not a trial. But the evidence before it included emails forwarding sales data, client scripts and revenue techniques to Ms Palmer’s personal address; a copy of the Leads List sent to a former colleague; and messages that were, to put it mildly, unhelpful to her case, including one that the client database was “a sneaky little marketing tactic, and oops, all BSC clients come to us”.

What the business asked for

BSC Charlestown sought interim injunctions restraining Ms Palmer (and the new company) from using its intellectual property, using the confidential Leads List, interfering with its relationships with the clients she had dealt with, soliciting its staff, and – the big one – working in or operating any competing business within a 15-kilometre radius of the clinic until October 2026.

The Court’s decision

Justice Williams granted much of what the business sought but refused the broad non-compete.

Confidential information and client connections - granted. The Court found a strong case that the Leads List was confidential, that Ms Palmer had breached her confidentiality obligations, and that she had actively sought to move clients to the new business. It restrained the use of the Leads List, and restrained Ms Palmer until October 2026 from interfering with the clinic’s relationships with the clients she had dealt with (excluding eighteen named clients the business agreed to carve out). It also restrained her from soliciting BSC staff for the same period.

A 5-kilometre non-compete – granted. Although the business asked for 15 kilometres, Ms Palmer accepted that a restraint within a 5-kilometre radius for twelve months would be reasonable, and offered an undertaking in those terms. The Court made an interim non-compete order on that 5-kilometre basis.

The 15-kilometre non-compete - refused. Here the business’s case was, in the Court’s words, very weak. Tellingly, the franchise deed for the very same clinic used a maximum restraint area of only 5 kilometres. That inconsistency gave rise to a strong argument that anything beyond 5 kilometres was not reasonably necessary to protect the business’s legitimate interests and so was contrary to public policy and void. The Court also weighed the serious harm a 15-kilometre restraint would do to the new business (on the evidence, it might have to be wound up) and the fact that BSC Charlestown’s case was undermined by delay: it had known about the new venture since December 2025 but did not sue until March 2026.

The undertaking as to damages - a decisive problem. The Court was not satisfied that BSC Charlestown and its related companies could actually meet the usual undertaking as to damages if the wide injunction proved to be wrongly granted. The evidence showed declining profits, tax debts of around $166,000, and few readily realisable assets. That inability to back the undertaking weighed heavily against the broad restraint (though it did not stand in the way of the narrower orders, which caused the other side no real harm).

The Court also pointedly noted that the business had failed to identify its confidential information and intellectual property with enough precision a drafting and evidence problem that narrowed what could be protected.

The lessons for business owners

This case is a checklist of what works and what fails when a key person leaves.

Reasonable restraints are enforceable; greedy ones are not. A modest, well-targeted restraint here, 5 kilometres for twelve months, was upheld. The sweeping 15-kilometre version collapsed. Draft restraints to protect your genuine interests and no further.

Be consistent across your documents. The single most damaging fact for the employer was its own paperwork: the employment contract reached for up to 50 kilometres, while the franchise deed used 5. Inconsistent documents are used against you. Make sure your contracts, deeds and policies tell one coherent story.

Don’t rely on a court to fix an overdrafted clause. New South Wales lets a court read a restraint down, but as this case shows, that is a fallback, not a strategy. A clause drafted reasonably in the first place is far more likely to be enforced quickly.

Define and protect your confidential information specifically. The business could protect the identified client list, but its broader claims suffered because it had not pinned down precisely what information and intellectual property it was trying to protect. Identify your key data (client databases, pricing, systems, manuals), mark it as confidential, control access, and require its return on exit.

Your client data is confidential and the trail is everywhere. Emails, texts and exported files tell the story. Good systems (access logs, offboarding checklists, prompt removal of access) both deter misuse and provide the evidence you need if it happens.

Move fast. Delay between learning of a competing venture and acting counted against the business. If you need to protect your position, seek advice and act promptly.

An injunction has a price tag. A court will usually require you to promise to compensate the other side if your injunction was wrongly granted and will look at whether you can actually pay. A business in financial difficulty may be refused relief it would otherwise have obtained. Keeping your finances in order is part of protecting your legal rights.

Get the agreements right at the start. Restraints, confidentiality and non-solicitation clauses are only as good as their drafting, and they should be reviewed whenever someone is promoted into a role with access to your most valuable relationships and information.