On 10 September 2012 in a landmark decision, the New South Wales Supreme Court redefined the scope of employment contracts by substantially altering confidentiality obligations of employees.
Justice Bergin found in favour of Wilson HTM Investment Group Limited (Wilson) in its claim against five former senior executives and rival firm, Ord Minnett Limited (Ords), for luring the executives and inducing them to breach their employment contracts. Whilst her Honour recognised that poaching in the financial services industry was commonplace, the use of Wilson’s confidential information in "creating a corporate vehicle" was unconscionable and in breach of the executives' fiduciary duties.
Importantly, the court’s determination sets a new benchmark for recruitment practices, challenging industry standards and expanding the scope of liability for defection.
Employment contracts and confidentiality
Wilson argued that the executives' disclosures of Wilson’s revenue information and the contents of commission statements to Ords effectively gave the rival firm insight into the profitability of Wilson’s business unit and an unfair advantage to strategically poach its employees.
Ords disputed the confidentiality of the disclosed revenue information and the extension of the doctrine of confidentiality to include employee remuneration was unreasonable, anti-competitive and detrimental to the executives’ opportunities in gaining better employment.
In balancing the legitimate commercial interest of employees against the interest of maintaining a stable workforce, the court determined the reference to "business affairs" in the confidentiality clause was intended to give Wilson the requisite protection. Moreover, contracts prohibiting disclosure of "remuneration" were held to extend to disclosure of individual "revenue".
Inducement of a breach of contract
A further issue concerned whether Ords had knowledge that the disclosures would cause the executives to breach their employment contracts. Ords contended there was no inducement; rather, the executives wanted to leave and their conduct was an exercise of their entitlement to resign. However, the court held a distinction existed between a "desire" to leave and taking the step of leaving that employment. Here, the executives remained contracted with Wilson, and accordingly their conduct failed to promote the interests of the employer.
The court inferred an intention to induce, on the basis that Ords would have been aware that the executives were subject to contractual obligations of loyalty to Wilson, and that confidential information would have been protected by a contractual prohibition on publication to third parties, particularly to competitors. Ords' requirement for secrecy in the process of communication with the executives, and the conduct of Ords in response to the invitation for a planned “walk out,” inferred an intention to hurt the earning capacity of Wilson.
What steps should you take?
Accordingly, employees seeking other opportunities and recruiting employers should take heed:
- Employers should ensure confidentiality clauses in employment contracts are widely cast and inclusive of information pertaining to remuneration, revenue, commission statements and general business affairs.
- Liability consequences for disclosure of confidential information regarding employee remuneration, employer earnings, specific revenue information, commission statements and charge sheets in the recruiting process.
- General revenue figures disclosed in ASX announcements and in the annual reports of listed companies pursuant to reporting obligations are not confidential.
- Employers are not restricted in approaching employees from other firms but should be mindful of the employee’s contractual obligations.
- Employees will not be relieved of confidentiality obligations on the basis of a "desire" to resign without further action.