Price to pay for breaches
Mr H worked as a marketing manager for an electrical testing company. After resigning, Mr H left to work for the company’s competitor before setting up his own competing business.
During this time, Mr H breached his obligation to act in good faith and more specifically breached his employment agreement with the company.
In an employment relationship the duty of good faith is mutual – both parties owe a duty to each other.
When breached, the penalties can go both ways.
Good faith means being active in maintaining a productive relationship.
Conduct that is misleading or deceptive is a breach of good faith.
While working as marketing manager, Mr H was entrusted with the company’s customer database, testing practices and other financial and confidential information.
Mr H’s employment agreement included a of non-solicitation clause and restrictions on the use of confidential information.
A non-solicitation clause in an employment agreement prevents an employee from contacting or trying to get the business of the employer’s customers or clients for a certain period of time after an employee leaves.
Mr H began his role in July 2013. In November 2013 Mr H went on a business trip to the South Island to attract new customers.
However, Mr H had in fact found a new job for himself with a competitor of the employer and had secretly assisted the competitor in setting up in the North Island.
Mr H stated in the Employment Relations Authority that he was just being friendly and wanted to keep his options open.
The Authority did not accept this and held that by assisting the competitor against the company, Mr H had breached his duty of good faith.
In May 2014, Mr H tendered his resignation but stayed until October 2014.
A few weeks later, the company’s general manager, Mr G noticed that all items from the ‘‘sent’’ outbox had been deleted from Mr H’s work email.
Around the same time, Mr G saw that Mr H had connected on LinkedIn with someone from an Australian electrical testing company and heard rumours that Mr H had set up his own business in competition with the company.
When Mr G asked about these rumours, Mr H suggested that he was going to work in areas that were not in competition with the company.
The authority found that these responses were misleading.
In April 2015, Mr G discovered that the company had lost one of its main customers to a business set up by Mr H. Mr G then arranged for Mr H’s laptop and phone to be examined by a digital forensic specialist.
The specialist’s report identified that a USB memory device was first attached to Mr H’s laptop on 29 July 2013.
The authority later found that Mr H had used this device to take confidential information without the company’s consent.
In May 2015, the company issued proceedings in the authority.
The authority required Mr H to attend the authority in June 2015 to produce relevant documents and information held by him, including any computer and mobile devices.
Mr H attended the Authority and produced 12 devices but this did not include the USB memory device.
When this was later produced it had been reformatted.
The authority found that Mr H’s actions in reformatting the device and failing to produce it at first instance amounted to obstruction of the authority’s investigation.
In the end, Mr H was ordered to pay $70,736 for unlawfully soliciting the company’s customers, $2572 in digital forensics costs, $8750 for the company’s time in dealing with his breaches, $10,000 for breaching his duty of good faith to the company, $8000 for breaching his employment agreement and a further $10,000 for obstructing the authority’s investigation.
This was a case where an employee breached the obligations of their employment agreement. By helping a competitor, Mr H was not acting in good faith while he was an employee.
By soliciting his former employer’s customer and taking confidential information on a USB device, Mr H breached further specific obligations of nonsolicitation and confidential information, after he had resigned.
Mary-Jane Thomas is a partner at Preston Russell Law. She is always interested in ideas for articles. E-mail her at Mary-Jane.Thomas@prlaw.co.nz.