Employment Law – Background

The following is a recent example of where a new employer was stung for the wrongs a new employee committed against their former employer …

The Case

In essence:

  • Lifeplan and Foresters were competitors in the business of funds management and the provision of investment products, principally for the purpose of funeral plans
  • whilst employed by Lifeplan, a manager emailed confidential Lifeplan documents to his personal email address and used these documents to prepare a business plan which he then presented to Foresters with the assistance of another manager
  • at the same time, both managers solicited the business of several funeral companies and service providers in order to secure business for Foresters and themselves
  • the managers used Lifeplan contracts, brochures and other marketing materials to prepare similar documents for themselves, and utilised Lifeplan’s printing company to generate this material
  • Lifeplan commenced proceedings against the managers and Foresters (who by this time employed the managers)

The Decision

The court on appeal held:

  • there could be “no doubt that the board of Foresters was actually aware, had actual knowledge, of the taking and using in breach of duty of confidential information
  • the managers, “with the full knowledge of Foresters, dishonestly breached their duty by, amongst other things utilising confidential information to prepare a business plan for the consideration of the board of Foresters”
  • the Board of Foresters actively used the business plan in its decision-making process and, subsequently, to monitor the performance of the joint venture
  • the business plan disclosed “detailed information, some of which expressly and plainly came from Lifeplan’s records… No honest and reasonable person, not shutting his or her eyes to the obvious, could conclude other than that the document was based on Lifeplan’s confidential information brought by current employees of Lifeplan

The Sting

Foresters’ knowledge and even participation in the manager’s breaches (contrary to the manager’s statutory and fiduciary duties under the Corporations Act), rendered it accessorily liable for the breaches pursuant to section 79 of that legislation.

The Liability

Following the court’s analysis of Forester’s profits (and what was submitted to constitute the ‘infected’ profits), Foresters (the new employer) was ordered to pay Lifeplan (the old employer) the sum of $6,233,944.

Tips for Employers

Employers need to be vigilant against misusing information and documentation belonging to third parties, lest they risk becoming involved in time consuming and expensive court cases.

Our Matthews Folbigg Workplace Solutions employment law team recommends employers:

  • seek the assistance of an employment lawyer to understand the impact of this decision
  • take reasonable steps to ensure that prospective employees are not acting in breach of any continuing obligations to their former employer before making offers of employment (e.g. by conducting due diligence and including warranties within the employment agreement)
  • exercise particular caution when proposing to employ senior employees who have recently left the employment of a competitor

More Information

Please call the leading employment lawyers in Parramatta, the Matthews Folbigg Workplace Solutions employment law team on 9635 7966 to speak with one of our employment lawyers.