The NSW Supreme Court has held that a company executive employee breached his fiduciary and contractual obligations to his former employer by soliciting work contrary to a restraint clause in his employment contract and diverting work to another company during his employment with them. He was ordered to pay over half a million dollars in damages.
The employee’s contract included a six month restraint clause for working with other advertising companies and soliciting the employer’s customers after termination of his employment. The employer claimed that the employee had breached this restraint clause by working for a company controlled by his wife and other advertising agencies within the six month period after ending his employment with them. The employer also claimed the employee had been diverting a major client’s work to the wife’s company throughout his final ten months of employment, and had been undertaking work for them at this time. The action claimed a breach of contractual and fiduciary obligations. The employee’s wife was a joint defendant as an alleged accessory to her husband’s dishonest conduct.
The NSW Supreme Court held that the employee had breached his duty of confidence when he diverted work away from the company during his employment. His wife was liable as an accessory for her knowledge of her husband’s conduct. He had also breached the six month restraint clause in his employment contract, which the Court held was a reasonable period of restraint in order to prevent such a major client following the employee with their business.
Key points for employers:
- Reasonable restraint clauses in employment contracts are a good way for employers to protect their businesses from loss of major clients if an important employee ends their employment.
- Senior employees have a duty of loyalty and confidence to act in the best interests of their employers in the course of their employment.
- Other parties, who are not employees of the company, may also be liable as accessories for their knowledge of an employee’s breach of loyalty to their employer.
A link to the decision can be found here: Andrews Advertising Pty Ltd v Andrews  NSWSC 318 (25 March 2014)