The Cost of Setting up in Competition with your Employer

The Cost of Setting up in Competition with your Employer
Wednesday October 3, 2012

The recent decision of the Employment Court in the Rooney Earthmoving case should serve as a sharp reminder of the consequences of engaging in trade competition in breach of your obligations as an employee. In short, three employees of Rooney Earthmoving Limited (“REL”) decided to leave their employment and establish a company BMW Contracting Limited (“BMW”) in direct competition.  None of the employees had a restraint of trade clause in their employment agreement.  However, the Employment Court found that each of the three employees had breached the contractual duty they owed to REL to act in good faith and with fidelity and not to mislead or deceive REL.  In particular the Court found the three had breached their duties by various actions including acting in concert to solicit clients for BMW while still employed by REL; acting in concert to solicit staff for BMW while still employed by REL; removing REL’s confidential information for the benefit of BMW; and obtaining REL’s client list for use by BMW. After finding the three liable for various contractual breaches the Court recently awarded them liable as a whole for the losses reasonably flowing from the breaches, amounting to just over $4million dollars.  The Court was satisfied that the period of losses should cover a 3-year period as there was no compelling factor to explain REL’s losses over that three year period other than the unlawful head start that BMW was given as a result of the breaches. Such a finding likely negated any profit made by BMW in that 3 year period. The Court’s decision is a useful one in closely examining precisely the obligations of good faith.  Interestingly the Court rejected the argument put forward on behalf of REL that the employees had also breached their obligation of good faith by failing to disclose their own or their fellow employee’s intention to leave and compete.  The Court found that to impose such an obligation would be to undermine the freedom of movement of employees and be contrary to the authorities which allow preparatory competitive steps to be taken, provided that these are not in breach of the obligation not to compete or to damage the employer, while the employee is still under a the duty of fidelity, trust and confidence.

 

By Chris Patterson