Australia: Com­pet­ing con­sid­er­a­tions: An employ­ee and her ​hob­by business

Last Updated: 16 November 2018
Article by Michael Byrnes

In the cur­rent age where any organ­i­sa­tion, irre­spec­tive of size, can adver­tise to the world through the inter­net, the bar­ri­ers to entry for ​"micro" or ​"hob­by" busi­ness­es are low­er than ever. Increas­ing­ly, employ­ees are show­ing their inge­nu­ity and entre­pre­neur­ship by set­ting up their own hob­by busi­ness­es to the side of their main employ­ment. Some of these busi­ness­es even lever­age the skills and expe­ri­ence that the employ­ee may gain dur­ing the course of their employ­ment. (Of course, they should nev­er use the con­fi­den­tial infor­ma­tion of the employ­er – anoth­er top­ic for a dif­fer­ent day.)

While many employ­ers are hap­py to accom­mo­date an employee's side busi­ness, pro­vid­ed it doesn't com­pete with their own oper­a­tions, there can some­times be a con­flict between the two.

A scent busi­ness caus­es a stink.

Such a con­flict arose in the recent case of Abi­gail Jack­man v Lek Sup­ply Pty Ltd T/A Lek Sup­ply [2018] FWC 6154, an unfair dis­missal deci­sion of the Fair Work Com­mis­sion (FWC).The appli­cant, Ms Jack­man, was employed in inter­nal sales by Lek Sup­ply Pty Ltd (Lek Sup­ply). On 23 April 2018 Lek Sup­ply ter­mi­nat­ed the employ­ment of Ms Jack­man on the basis of con­flict of inter­est. This breach was said to arise by rea­son of con­duct relat­ing to Ms Jackman's side business.

This busi­ness, Roy­al Scent & Co., was start­ed while Ms Jack­man was on mater­ni­ty leave and sold prod­ucts such as can­dles, reed dif­fusers and bath and body prod­ucts from her home. It derived rev­enue of less than $10,000 per year. Impor­tant­ly for this case, Face­book and Insta­gram pages were estab­lished for the busi­ness (as is de rigueur for almost any busi­ness in this age).

Ms Jack­man estab­lished the busi­ness in July 2017 and returned to work from mater­ni­ty leave in Jan­u­ary 2018. She signed a new employ­ment con­tract for a revised role with Lek Sup­ply in April 2018. That con­tract of employ­ment rel­e­vant­ly includ­ed the fol­low­ing terms:

"You must at all times... devote your full work­ing hours to the require­ments of your role."

"Your hours of work are 8.00 am to 5.00 pm, Mon­day to Fri­day plus any rea­son­able addi­tion­al hours as required from time to time."

"While employed by Lek Sup­ply Ltd, you must not engage in pri­vate busi­ness or under­take oth­er employ­ment in direct or indi­rect com­pe­ti­tion with Lek Sup­ply Pty Ltd using any knowl­edge or mate­ri­als gained dur­ing the course of your employ­ment under this agree­ment. Any such activ­i­ty will be deemed to be a con­flict of inter­est with Lek Sup­ply Pty Ltd and may lead to the ter­mi­na­tion of your employ­ment under the terms of this agreement."

"Use of Lek Sup­ply Pty Ltd's inter­net facil­i­ties to access social media appli­ca­tions or ser­vices is pro­hib­it­ed dur­ing work­ing hours unless specif­i­cal­ly approved for your role. This includes access­ing such sites dur­ing work­ing time on your busi­ness or per­son­al mobile. Mak­ing exces­sive per­son­al calls and send­ing per­son­al text or chat mes­sages, is also prohibited."

The cat­a­lyst for the sequence of events in this case was a cus­tomer com­plaint about Ms Jack­man in rela­tion to plac­ing a wrong cus­tomer order. In the course of inter­nal enquiries about this mat­ter var­i­ous employ­ees claimed to man­age­ment that Ms Jack­man was con­stant­ly on the phone for non-work pur­pos­es and she had her own business.

These obser­va­tions from employ­ees prompt­ed the employ­er to look into Roy­al Scent & Co. The pro­file for the busi­ness on Face­book and Insta­gram showed Ms Jack­man to be the sole ​"team mem­ber" of the busi­ness and it list­ed her mobile phone num­ber. Fur­ther, the hours of oper­a­tion were adver­tised as Mon­day to Fri­day 9.00 am to 5.00 pm. The Face­book site assert­ed that the busi­ness ​"typ­i­cal­ly replies with­in a few hours". There were also a series of Face­book posts that were made on work days dur­ing busi­ness hours.

For her part, in the hear­ing Ms Jack­man denied being pre­oc­cu­pied on her phone at work and respond­ed that a friend of hers was enlist­ed to under­take tasks for her busi­ness dur­ing work hours. Ms Jack­man fur­ther sub­mit­ted that any social media posts for her busi­ness were made dur­ing break times but con­ced­ed she respond­ed to enquiries dur­ing busi­ness hours through per­son­al mes­sages. Ms Jack­man sub­mit­ted that she did not notice the con­flict of inter­est claus­es in the employ­ment con­tract and did not think she had rea­son to tell Lek Sup­ply about her side business.

Con­duct of com­pet­ing busi­ness was a breach of obligations.

Com­mis­sion­er McK­in­non held that:

"... Ms Jack­man engaged in pri­vate busi­ness activ­i­ties while at work and that she did so dur­ing work­ing hours. I do not accept that these activ­i­ties were always con­duct­ed dur­ing breaks. Ms Jack­man con­ced­ed as much. Whether she did so ver­bal­ly or in writ­ten form is beside the point. It was activ­i­ty that detract­ed from her duty to Lek Supply."

Com­mis­sion­er McK­in­non continued:

"I do not accept that Ms Jack­man was unaware of her oblig­a­tions under her con­tract of employ­ment. The hand­writ­ten nota­tions make it more like­ly that the con­tract was read care­ful­ly before it was signed, with nego­ti­a­tions tak­ing place to address any con­cerns. I also do not accept the sub­mis­sion of Ms Jack­man that the con­tract only pre­vents pri­vate busi­ness that is in ​"direct or indi­rect com­pe­ti­tion" with Lek Sup­ply. There is no rea­son to read the con­flict of inter­est in such a lim­it­ed way. On a fair read­ing, it pre­vents employ­ees from engag­ing in pri­vate busi­ness dur­ing their employ­ment as well as oth­er employ­ment in com­pe­ti­tion with Lek Sup­ply. It requires employ­ees to devote ​"their full work­ing hours" to the require­ments of their role. It pro­hibits access to social media appli­ca­tions or ser­vices dur­ing work­ing, unless specif­i­cal­ly approved for the role, either on a busi­ness or per­son­al mobile phone. It pro­hibits the send­ing of per­son­al text or chat mes­sages at work."

Com­mis­sion­er McK­in­non con­clud­ed that Ms Jackman's con­duct of her pri­vate busi­ness dur­ing work­ing hours on her mobile phone was in breach of the employ­ment con­tract and was, there­fore, a valid rea­son for dismissal.

The impor­tance of pro­ce­dur­al fair­ness is empha­sised yet again.

Notwith­stand­ing the valid rea­son for dis­missal, the dis­missal was found to be unfair on pro­ce­dur­al grounds. The rel­e­vant man­ag­er, Ms Dao, held the view that Ms Jack­man oper­at­ing her busi­ness at work was seri­ous mis­con­duct and that noth­ing Ms Jack­man could say would pro­vide an ade­quate response. She then asked anoth­er offi­cer of Lek Sup­plies, Mr Lek, to meet with Ms Jack­man for the pur­pose of ter­mi­nat­ing her employment.

On 23 April 2008 Mr Lek did this. Ms Jack­man was nei­ther told the rea­son for the meet­ing pri­or to its com­mence­ment nor asked any ques­tions about the alle­ga­tions. She was sim­ply hand­ed a let­ter of dis­missal. Upon ask­ing why she was being dis­missed, she was told that a home busi­ness was a con­flict of interest.

Not sur­pris­ing­ly, Com­mis­sion­er McK­in­non found that there was no notice of the rea­son for dis­missal until the time of dis­missal and Ms Jack­man was not giv­en any oppor­tu­ni­ty to respond to the rea­sons for dismissal.

Hav­ing con­sid­ered these and oth­er fac­tors, Com­mis­sion­er McK­in­non held that the dis­missal was harsh finding:

"It was a dis­pro­por­tion­ate response to a valid con­cern, which had only recent­ly become appar­ent. A warn­ing would have been a more appro­pri­ate response."

Fur­ther, Com­mis­sion­er McK­in­non held (once again rein­forc­ing the impor­tance of pro­ce­dur­al fairness):

"The view expressed by Ms Dao that noth­ing Ms Jack­man would have said would have made any dif­fer­ence denied Ms Jack­man the chance to acknowl­edge the inap­pro­pri­ate­ness of her con­duct and to adjust her behav­iour accord­ing­ly. In my view, her his­to­ry as a val­ued employ­ee of the busi­ness sug­gests she would have done just that."

On this basis an order was made for Ms Jack­man to be rein­stat­ed to her for­mer position.

Deci­sion not a green light for employ­ee businesses.

Lest it be con­sid­ered that the FWC was con­don­ing the oper­a­tion of the side busi­ness dur­ing work­ing hours, and con­sis­tent with find­ings on valid rea­son for dis­missal, Com­mis­sion­er McK­in­non noted:

"Ms Jack­man is on notice that it is not appro­pri­ate for her to con­duct her per­son­al busi­ness at work, whether by phone, text mes­sage, or oth­er­wise. If her busi­ness is to con­tin­ue to oper­ate, Ms Jack­man will need to make arrange­ments for it to occur out­side of work­ing hours."

Employ­ers are enti­tled to expect employ­ees devote their ​"full time and atten­tion" dur­ing work hours to their duties. Gen­er­al­ly speak­ing this will large­ly pre­clude an employ­ee oper­at­ing their own busi­ness dur­ing these hours in the absence of agree­ment with the employ­er to the contrary.

Employ­ers might want to consider:

  1. Includ­ing con­trac­tu­al terms or adopt­ing an enforce­able pol­i­cy address­ing the issue of employ­ee side or ​"hob­by" businesses;
  2. Express­ly pro­hibit­ing involve­ment in any oth­er busi­ness that direct­ly or indi­rect­ly com­petes with the busi­ness of the employer;
  3. Requir­ing employ­ees involved in side busi­ness­es to dis­close and seek con­sent for con­duct­ing such busi­ness­es (which can­not be unrea­son­ably with­held – the lim­its of an employer's pre­rog­a­tive need to be observed); and
  4. Estab­lish­ing sen­si­ble lim­its and pro­to­cols for use of tech­nol­o­gy and social media for an employee's side busi­ness dur­ing work hours and con­sis­tent­ly enforc­ing them.

For further information please contact:

Michael Byrnes, Partner
Phone: + 61 2 9233 5544

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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