A former sales manager has been fined $7,115 and found in contempt of court for breaching undertakings he had given to the Supreme Court of South Australia that he would not contact or accept approaches from customers and contractors of his former employer.
In early-2018, Maxilift Australia Pty Ltd, a crane sales company, commenced proceedings in the court against a former sales manager who had recently left its business to work for a competitor.
The employer was concerned that the employee would use its confidential information to obtain business from the employer’s customers and contractors for the benefit of his new employer.
Even though the employee denied misusing or having access to any such confidential information, he agreed to give undertakings to the court to the following effect.
- He would at no time in the future access, use or misuse the employer’s confidential information.
- He had not, and would not, communicate with, or accept any approach from:
- any customer or contractor with whom he had a business relationship with during his employment with the employer that was not already a customer or contractor with his new employer prior to his resignation; and
- any individual at any customer or contractor with whom he had a business relationship with during his employment with the employer, even if they were already a customer or contractor of his new employer prior to his resignation.
The employer thereafter commenced further proceedings against the employee alleging that he had breached the undertakings on 25 occasions between January and June 2018, and that he ought to be found in contempt of court.
The alleged breaches included the following.
- Fourteen interactions between February and June 2018, with a company that was a contractor to both employers which fitted cranes. Those interactions resulted in the contractor fitting a crane for one of the new employer’s customers;
- Seven interactions between January and May 2018, with another company that fits cranes onto trucks for customers. Those interactions resulted in the new employer installing a particular crane that was not sold by the employer;
- Two interactions between January and February 2018 with another company who again fit cranes onto trucks for customers; and
- Three interactions between January and March 2018, with a customer of the employer in relation to a tender that had been issued for the replacement of a crane. Expressions of interest for that tender were sought only from the new employer and another company, but not the employer. The new employer won that contract.
The employee pleaded guilty to the breaches. However, he argued his interactions with the contractors did not deprive the employer of any business or result in any loss to the employer — rather, he had given business to those contractors.
In relation to his interactions with the customer, the sales manager contended that was only involved in the tender process because the employer had not been eligible to participate in the tender process. There was, therefore, no loss to the employer.
The court considered that, taken alone, each infraction was relatively minor. However, the repetitive nature of the behaviour and the frequency of the interactions rendered the employee’s conduct to be serious contempt of court.
The court noted the employee’s actions did not cause any harm to the employer nor any direct benefit to the new employer, however “the harm caused to the administration of justice should such conduct be allowed to pass uncriticised and unpunished would be significant”.
It accepted the employer’s submission that it would significantly undermine the court’s processes and administration of justice if parties could not rely on undertakings being observed and adhered to.
The court also accepted that the employee did not likely possess sufficient facility of language and grammar to enable a clear understanding of the undertakings without clear and repeated explanation. It therefore found that his breach was reckless and that he did not knowingly breach the undertakings.
The fine imposed was reduced from $10,240.00 to $7,115.00. The court did not consider it appropriate to impose a jail sentence on the employee who had no prior convictions.
What can your business learn from this decision?
This decision provides comfort to employers who obtain undertakings from a former employee in relation to the use of confidential information and communication with customers and clients — particularly if those undertakings are provided to the court.
As this decision shows, the courts understand the reliance placed by employers on such undertakings, and are willing to punish breaches of those undertakings, regardless of whether or not there has been significant damage to the employer’s interests.
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This article was first published by Workplace Law.