Justice Foster of the Federal Court has upheld allegations that an employee, who established and strived to advantage his personal company at the cost of his employer, was in breach of numerous employment and other obligations and was liable for damages. The breaches were constituted by conduct both during and after the period of employment.

Most notably, the judge found that a qualification that the employee had gained in the course of his employment was to be used only for the benefit of the employer and could not be used for personal advantage.

Implications for employers

Employers should be reassured by this decision, as it confirms employees may owe duties beyond those in the employment contract. These fiduciary duties may arise and persist beyond the period of employment where the employee is a senior trusted member of the company. In particular, this decision confirms that these duties will be significant where:

  • the employee has been provided with an accreditation or qualification through an opportunity offered to the company; and
  • the employee attempts to use the qualification for personal or others’ advantage.

This decision is also useful as it provides some examples of conduct that may constitute a breach of duty under an employment contract:

  • copying company materials and using them for personal advantage;
  • establishing and carrying on business in competition with the employer’s company;
  • diverting business opportunities from the employer’s company; and
  • approaching the employer’s clients in confidence to open negotiations.

Background

Nigel Huckstep was engaged by Bayley & Associates (B&A), which provides training services to Commonwealth government departments. Mr Huckstep was employed initially as a Senior Consultant and, later from February 2008, as General Manager.

During this time, B&A became aware of the opportunity to gain a Top Secret Positive Vet (TSPV) accreditation which would grant them practically exclusive access to business with classified Commonwealth government departments. Mr Huckstep requested he be put forward for the accreditation to assist in bringing in business for B&A. Significantly, the TSPV clearance is extremely difficult to obtain and a sole accreditation was being offered.

In around mid-August 2008, Mr Huckstep advised Bayley director Ruth Bayley, that he intended to leave the organisation. He eventually resigned in December 2008. In the period prior to his resignation, Mr Huckstep had a number of discussions with Ms Bayley about how he might continue to be involved in the business after his resignation. Shortly before his resignation, Mr Huckstep incorporated his own company, DBR Australia (DBR).

From the time of his resignation until March 2010, DBR, B&A and Mr Huckstep were involved in several joint transactions.

In March 2010, Ms Bayley discovered emails containing confidential information of B&A which were sent by Mr Huckstep to his DBR email address, whilst he was an employee of B&A. The email correspondence indicated that, while employed at B&A, Mr Huckstep was taking steps to develop contacts and business opportunities for the benefit of DBR (in the absence of any benefit to B&A). For instance, Mr Huckstep submitted proposals to clients in DBR’s name (in competition with B&A) and obtained a copy of B&A’s courseware for DBR’s use. In addition to this, it was alleged that Mr Huckstep had induced another B&A employee, Stuart Jenkins, to leave his position.

After discovering the above, B&A commenced proceedings against Mr Huckstep and DBR in the Federal Court, alleging that both defendants misused B&A’s confidential information and acted in breach of contract (both Mr Huckstep’s contract of employment with B&A, and DBR’s subcontractor agreement with B&A). It was also alleged that Mr Huckstep had breached fiduciary duties he owed to B&A, had breached the equitable duty of confidence, and that there had been copyright infringement.

Decision

The matter was heard by Justice Foster.

The contract of employment

Mr Huckstep’s employment contract with B&A contained a number of clauses which:

  • sought to prevent him from using B&A’s confidential information in any manner or purpose other than for the purpose of the business; and
  • required him to avoid any actual or perceived conflicts of interest.

Justice Foster found that whilst still employed by B&A, Mr Huckstep opened negotiations with, and diverted business of, important B&A clients; assisted B&A’s competitors with tender proposals; and put forward proposals on behalf of his personal company DBR and himself. Further, he “systematically electronically transferred all or almost all of B&A’s courseware to his new DBR email account”.

Justice Foster found this conduct constituted a breach of Mr Huckstep’s duties under the employment contract.

Fiduciary duties

In addition to the clauses mentioned above, Mr Huckstep’s employment contract set out in some detail the duties of the General Manager position. B&A argued that, when read with the terms of his employment contract, the nature and duties of Mr Huckstep’s position resulted in him owing fiduciary duties to B&A.

The judge found fiduciary duties arose because Mr Huckstep “was in a very significant managerial position” with “significant responsibility for managing both the staff and the business of B&A” and with “significant access to B&A’s confidential information business plans and facilities”. B&A “was very vulnerable to any breach by Mr Huckstep of his [employment contract] and of his common law duty of fidelity”.

As such, the breaches of his employment contract discussed above also constituted breaches of fiduciary duties.

Significantly, the fiduciary duties also meant Mr Huckstep was restricted in his use of the TSPV accreditation. Justice Foster found that as the opportunity to obtain the TSPV came to Mr Huckstep because he was General Manager of B&A, “he was not entitled to exploit the TSPV for the benefit of himself, DBR or any other person while he was employed by B&A nor was he entitled to do so after the cessation of his employment”.

Given Mr Huckstep used the TSPV to divert business to DBR, B&A was found to be entitled to equitable compensation or an account of profits.

Breach of auspicing agreement and breach of copyright

Further claims that Mr Huckstep and DBR had breached an auspicing agreement and B&A’s copyright were upheld by the judge but are discussed here.

Orders for relief in this case have not yet been made.

Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341