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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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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