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18 October 2012 When Competitors Steal Staff There Are Legal Consequences

By Warwick Ryan, Partner and Laura Sowden, Solicitor


In Brief

A competitor can be made to pay when they poach employees and then harvest confidential information those employees have.

In the recent decision of Wilson HTM Investment Group Limited & Ors v Pagliaro & Ors [2012] NSWSC 1068, Justice Bergin in the New South Wales Supreme Court determined that information of the revenue levels of employees in the stockbroking industry was confidential information capable of protection.


Background

The case concerned a group of employees who were "poached" from Wilson HTM Investment Group Limited (Wilson) by Ord Minnett Limited (Ord). Wilson alleged that employees in their new positions at Ord had breached the terms of their employment contracts with Wilson restraining them from disclosing confidential information.

Wilson claimed the breach had been induced by Ord as they had caused the employees to disclose the information and take part in a plan to persuade other employees of Wilson to terminate their contracts with Wilson and work for Ord.

It was alleged that one of the employees, Mr Pagliari, had told Ord what revenues employees at Wilson had earned during 1 July 2011 to May 2012 for bringing new clients to Wilson. This information was then used to draft financial offers to employees planning to leave Wilson. Wilson claimed this information was confidential.

Some of Wilson's employees were concerned about the financial viability of the company and their future employment. When rumours that the employees were going to leave reached Wilson the company terminated their employment on 1 July 2012 giving them three months notice.

Decision

Justice Bergin held that revenue was covered by the employment contracts' definition of confidential information because the contracts referred to "information" relating to Wilsons "business affairs".

The employees and Ord contended that if the information was confidential and covered by the restraint, then the restraint was unreasonable and therefore void under the Restraints of Trade Act 1976 (Cth). The restraint would be unreasonable on the basis that if an employee's level of revenue raising was confidential and they were restrained from revealing it then;

  • It would reduce the employee's ability to seek other employment;
  • It was anti-competitive; and
  • It did not protect a legitimate commercial interest.

Justice Bergin concluded that the restraint was reasonable but outlined that it was not enough to show there was a breach in this case. Rather, Wilson also had to show that Ord had intended to induce a breach of contract and was aware their conduct would induce a breach of contract.

Ord submitted that they had not induced the employees to breach their contracts; rather the employees already wanted to leave employment with Wilson and approached Ord seeking employment with them.

However, her Honour found that Ord knew that the employees had contractual obligations not to harm Wilson's business and disclose confidential information. As such Wilson successfully established that Ord had induced the employees to breach their contracts.

The employees were looking to leave Wilson and find other employment and on this basis her Honour concluded they would have given 1 month's notice to Wilson. The damages were thus calculated on the revenue the employees would have made during the 1 months notice discounted by 60%, equalling $176,416 damages. The damages Wilson received were diminished because the employees would have left anyway even if not to work with Ord.

Wilson was also granted an injunction restraining Ord from using, publishing or otherwise dealing with any of the employee revenue information in the future.

The decision marks an arguable expansion in confidential information and what the courts will protect. It also demonstrates that employees and prospective employers need to be careful of their conduct during employment negotiations.


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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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