Spotless Group Limited v Blanco Catering Pty Ltd [2011] FCA 979

Whilst clarity of thought often only comes with hindsight, there are occasions when one can only muse: "What were they thinking?"

Such an occasion is illustrated by the decision of the highest ranking manager in South Australia and Western Australia for the Spotless Catering Group to forward plan his departure and transition to a competitor's business.  Whilst not a contentious decision in itself, it was not a good idea to acquire a third interest in the competitor through a trustee company, have his wife installed as a director and pass confidential information and copyright material to the competitor which was used, in part, to bid for projects in competition with Spotless Group.  Furthermore, it was probably rubbing salt into the wounds that part of the reason for delaying his departure from Spotless Group was to qualify for pro-rata long service leave.  

A valuable lesson for transitioning employees

The case is not noteworthy for the elucidation of any obscure legal principle or the forging of a paradigm shift in employment law, copyright law or the law relating to confidential information; although there is an interesting discussion in the case around the avoidance of the doubling up of damages awards where there are breaches of multiples causes of action by one course of conduct.  However, the case is a salutary lesson to employees who are planning their departure from current employment.

Whilst the law recognises that an employee is entitled to make some preparation for a change in employment or the establishment of a new business following current employment which, in either case, might be in competition with the business of the current employer, those preparations must not be made in the current employer's time and must not interfere with the employee's current duties.  Furthermore, the more senior in the organisation, the more exacting the duties will be on the particular employee.

The duties of an employee to their employer

The duties of an employee are to be found in a number of legal pigeon holes and to a large extent overlap.  The overriding duty is a common law duty of loyalty, fidelity and good faith.  This is reinforced by prohibitions in the Corporations Act 2001 which prohibit employees from improperly using their positions or using information gained because they were employees, to gain an advantage for themselves or others or to cause detriment to their employer.  There are also legal prohibitions concerning the misappropriation of confidential information and, in most cases, express obligations contained in employment contracts. 

In this case, the breaches were serious even though the Court was prepared to accept that the manager, by and large, did not compromise in any way any of the work he did for Spotless Group in the months before his employment came to an abrupt halt when the Spotless Group learned of his activities.  Notwithstanding this, the manager was ordered to pay damages of $100,000.00 to Spotless Group and ordered to deliver up and not use any of the misappropriated information or copyright materials.