When Com­peti­tors Steal Staff There Are Legal Consequences

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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.

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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.