In brief

Spotless Group Ltd v Blanco Catering Pty Ltd1 confirms the long standing legal principles of an employee’s duties to their employer:

  • not to put themselves in the position where their personal interests conflict with that of their employer
  • not to take advantage of opportunities or knowledge derived from their position as an employee for their own or a competitor’s benefit, and
  • not to use their work time for furthering their own interests.

This case provides an example where a court has been willing to grant both injunctive relief and damages, notwithstanding the employer did not lose business as a result of the employee’s breaches. A significant part of the general damages award reflected compensation for copyright infringement on the basis that the unauthorised use of the employer’s templates had made it easier for the employee to assist with a competing bid and had given comfort as to the financial projections underpinning the bid.  

Background

Mr Paul Reynolds was a high ranking employee of the Spotless Group Ltd catering division (Spotless). At the material time he was head of the catering division for Western and South Australia.

During his time in that role, Mr Reynolds came into contact with one of the directors and operators of rival catering company, Blanco Catering Pty Ltd (Blanco). Mr Reynolds became actively involved in the operation of Blanco and had obtained an indirect 33.3% ownership of Blanco.

Mr Reynolds provided assistance in the running of Blanco by getting business for Blanco (sometimes in direct competition with Spotless) and, providing Blanco with substantial amount of information concerning the way the Spotless catering business operated, including confidential customer and supplier information, some proprietary financial models and some sensitive financial information concerning Spotless’ bid for a large, long-term catering contract (Zoo project).

Spotless became aware of Mr Reynolds’ dealings with Blanco and confronted him about this. This was a substantial issue for Spotless as both Blanco and Spotless were rival bidders for the Zoo project. Following further meetings with Mr Reynolds, Spotless terminated Mr Reynolds’ employment.

In separate and earlier proceedings Spotless brought legal action against Blanco, in which they succeeded in obtaining an injunction restraining Blanco from using any confidential information transmitted by Mr Reynolds.

This case concerns Spotless’ legal action against Mr Reynolds for breach of his contractual and common law employment obligations, as well as breach of Spotless’ copyright in the financial models and data.

Claims

Employee obligations

The court summarised the key legal principles concerning the relationship of an employee and employer as follows:

  • employees owe a duty to their employer not to put themselves in the position where their personal interests conflict with those of their employer
  • employees owe a duty not to take advantage of opportunities or knowledge derived from their position as an employee for their own benefit or for the benefit of those they know are competing with their employer
  • an employee may not use the time for which he or she is paid by the employer in furthering his or her own interests
  • an employee is entitled to make some preparation for the conduct of a new business of their own in competition with their employer, as long as it is done in their own time and does not interfere with their duties to the employer, and
  • a former employee may use know-how obtained during the course of their employment—excluding information of confidential nature—but this does not extend to information deliberately obtained during employment for use after the employment relationship ceased.

The court commented that these duties are more exacting on senior employees, such as Mr Reynolds, than on junior employees whose involvement in running of the employer’s business are to a much lesser degree.

After an in-detail analysis of the facts presented at trial the court found that, in particular in relation to the Zoo project, Mr Reynolds:

  • had diverted business opportunities from Spotless to Blanco
  • had provided confidential information of Spotless to Blanco, and
  • but did not use his employment time to carry out the above activities.

Despite the breach of duties by Mr Reynolds, the court found that it was unlikely that Spotless would have won the bid for the Zoo project and did not award damages in that regard.

Copyright

Part of the confidential information transmitted by Mr Reynolds to Blanco, via email, included Spotless’ document templates and financial models. Spotless alleged that its copyright in these templates was infringed by Mr Reynolds when he used them as a base for financial models relied upon by Blanco for the Zoo project and emailed them to Blanco.

Neither party contested that the Spotless templates constituted a literary work for the purposes of the Copyright Act 1969 (Cth) (Copyright Act). However, Mr Reynolds argued there was no substantial reproduction of the templates because he added significant additional information to distinguish them from the original documents. Mr Reynolds additionally argued that the templates used were commonplace and readily available on any commercial Excel spreadsheet program.

Upon analysing Spotless’ template documents and the alleged infringing documents, the court found that Spotless’ template documents were 'sophisticated documents, carefully prepared and developed over time for the particular purpose of Spotless'. The court rejected Mr Reynolds’ defences and held that Mr Reynolds infringed Spotless’ copyright in the templates by reproducing all or substantially all of the templates.

Outcome

The court held that Mr Reynolds was in breach of his duties to Spotless and in breach of the Copyright Act.

On the evidence presented at trial the court determined that despite Mr Reynolds’ breaches, Spotless was unlikely to have been awarded the Zoo project. Accordingly, it did not award Spotless any damages for the loss of the bid.

The court, however, did award $100,000 general damages to Spotless for Mr Reynolds’ breach of his duties. The court did not provide reasoning for the figure but stated that it:

reflects, but only in a very general way, the loss of opportunity to secure the Zoo project because the use of the Spotless templates made the task of Mr Reynolds in doing the financial modelling for Blanco for its rental proposal easier and because its revenue projects may have given it some comfort when it decided to match the revised Spotless rental offer, as well as the general considerations relating to the assessment of such damages.  

The court avoided the issue of duplication of damages for breach of duties and the breach of the Copyright Act, by holding that the assessment of general damages for breaches of duty took account of the conduct which constituted the breaches of copyright.

Interestingly, the judge discussed what he might have awarded for breach of copyright. His award would have been included the sum of $10,000 essentially because Mr Reynolds was aware that he was wrongfully copying the templates.

Additionally, a number of injunctive orders restraining activities of Mr Reynolds were also made.