On 1 May 2013, the Supreme Court of New South Wales handed down
judgment in HRX Pty Ltd v Scott  NSWSC 451 (HRX v
Scott). In doing so, the Court sent a clear message to employers
about the risks associated with "poaching" employees from
competitors. The Court imposed an order for costs against the new
employer which had initially funded the employee's defence. The
claim was brought by the employee's previous employer against
its former employee due to an alleged breach of the employee's
restraint of trade obligations.
HRX Pty Ltd (HRX), the former employer, and Talent2 Pty Ltd
(Talent2), the new employer, are both providers of human resources
consultancy services in direct competition with each other. Mr
Scott, the defendant, was employed by HRX until 31 January 2012,
when he resigned and began working for Talent2.
Mr Scott's contract of employment with HRX contained a
post-employment restraint provision which prevented him from
soliciting HRX's clients or working for a competitor for a
specified period upon ceasing employment with HRX. Prior to
litigating the matter, HRX requested that Mr Scott and Talent2
provide undertakings to the effect that both would stop soliciting
HRX's clients and that Mr Scott would cease working for
When these undertakings were not provided, HRX commenced
proceedings against Mr Scott who defended the claim with the
financial assistance of Talent2. The proceedings progressed for a
period, however on 22 August 2012, Talent2 advised Mr Scott that
they would no longer fund his defence and, if he did not resign
from his position at Talent2 his employment would be
In light of this, Mr Scott resigned from Talent2 and submitted
to most of the orders sought by HRX. HRX then proceeded to seek an
order that Talent2 pay its costs of the proceedings in accordance
with s 98 of the Civil Procedure Act 2005 (CPA).
The Chief Justice in Equity, Justice Bergin, ordered that
Talent2 pay HRX's costs even though Talent2 was not a party to
the original proceedings. The Court determined that its powers to
award costs under s 98 of the CPA extended to non-parties due to
its "full power" to determine by whom, to whom and to
what extent costs are to be paid.
In handing down her decision Justice Bergin stated that:
"When a new employer "stands up to" and
funds litigation brought by the former employer against its new
employee in circumstances where there are breaches of obligations
owed to the former employer, the new employer may be at risk of an
order being made against it under s 98 of the Act. Of course it
will depend upon the circumstances of each case."
The Court determined that without the funding from Talent2, the
litigation would not have proceeded and Talent2 was in a position
where it would have benefited from the employee's successful
litigation as it would have retained an experienced employee in a
Implications for Corporations
The decision in HRX v Scott provides an important lesson for
corporations aiming to recruit the employees of its competitors.
Justice Bergin stated that:
"It is incumbent upon employers who effectively
poach their competitors' employees to ensure that those
employees are not acting in breach of their obligations to their
former employers, particularly where the consequence of such breach
is a benefit to the new employer."
By ignoring a new employee's obligations to their previous
employer, a corporation puts itself at significant risk even in
circumstances where litigation isn't commenced directly against
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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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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