The Federal Court has issued an injunction against the former manager of a company, who launched a small business before leaving his old job, from using confidential information in his new jobs until February 2015.
The case follows research by PwC showing one in four (23%) of new employees leave their jobs within the first year, making the issue of staff departing with company secrets a salient one for many businesses.
Since 2011, Matthew Aladesaye served as the reliability manager for mechanical engineering consultancy business APT Australia. His duties were to identify and secure business opportunities with new and existing clients.
In January 2013, Aladesaye began a new business directly competing with APT, called Advanced Vibration & Reliability Engineers (AVRE). By January this year, APT’s general manager, Geoff Soper, noticed business was drying up in APT’s Adelaide operations, where Aladesaye was employed.
During February and March of this year, Aladesaye travelled to Nigeria for business. An employee at APT discovered during the trip Aladesaye allegedly conducted his own business under the name the “Vibration Institute of Nigeria”.
In May, Aladesaye gave four weeks’ notice of his resignation and was asked to hand over his company-provided mobile phone and laptop. Redirected emails and phone calls appear to show.
Around the same time, Soper claims he spoke to a client Aladesaye had previously worked with. When discussing work that needed to be done in the future, Soper was surprised to hear the client say “Matthew has already done it”.
Soper wrote to Aladesaye requesting he cease dealing with APT’s clients for a period of 12 months and deliver up all of APT’s confidential information and intellectual property held by him.
During the court case, APT argued Aladesaye had breached his employment contract, which stated he was to: “devote the whole of your time, attention and skills to the duties and must not whilst in the company’s employment take on any other employment, engage in any other business activity… unless otherwise agreed with the Directors of the company.”
Aladesaye also signed a confidentiality agreement, which stated: “All inventions, improvements, designs, creations and other developments relating to or deriving from any of the business systems or technology used by the company at any time during your employment or within a reasonable time thereafter, shall be the property of the company.”
Meanwhile, Aladesaye claimed he was providing services to customers who were dissatisfied with APT and that the work was his sole source of income.
In the decision, Justice Lindsay Foster found the damage caused by Aladesaye continuing to deal with his customers would be “severe and irreparable” for APT.
“APT has legitimate and reasonable concerns that, if the defendant is free to continue dealing with APT’s existing and former clients pending the final determination of this proceeding, the damage will be so severe and irreparable that little could be done to reverse its impact,” Foster said.
“Against this, all that the defendant puts forward is the fact that the business which he has established and pursued in breach of his duties to APT is his only source of income at present. That is hardly a significant factor to be weighed in the balance, in the circumstances of this case.”
Employment lawyer Peter Vitale told SmartCompany it’s important to realise no-compete clauses can extend beyond when a person’s employment with a business is terminated.
If an employee uses confidential information to build their own business, Vitale says the courts are likely to grant an injunction for a longer period, known as a “springboard doctrine”.
“I think it’s an example of a case that demonstrates that an employee is not entitled to engage in competition with their employer while they’re still employed,” Vitale says.
“To use confidential information of an employer in furthering a competitor is a very serious breach of an employment contract.
“Any employee looking to gain a head start needs to be extremely careful because the courts are alive to the threat and will make orders to prevent someone taking advantage of that if it’s a head start.”
SmartCompany contacted APT for comment but did not receive a response prior to publication.