Three employees who left their former employer to establish a competing business have been ordered by the Employment Court to pay damages of $4,290,000.
Each of the three employees was found to have breached duties owed to their former employer Rooney Earthmovers Limited (REL), whilst still employed by it. The breaches included:
- Soliciting staff of REL to join their new business (BMW Contracting);
- Soliciting customers of REL;
- Using an REL quotations folder to undercut REL for the benefit of BMW;
- Obtaining a client list;
- Clearing a whiteboard of confidential information relating to ongoing contracts to deprive REL of the knowledge of that work and to use it instead for BMW's purposes.
The Court found that BMW would never have been in a position to compete with REL successfully without the concerted actions of the three employees in unlawfully using REL's confidential information and soliciting customers and staff. Their combined breaches enabled them to trade profitably and substantially from the outset, at the expense of REL. In its first month of trading BMW generated profits of approximately $200,000.
Without this head start obtained as a result of the employees' breaches, the Court was not satisfied that BMW would have been in a position to be a substantial competitor of REL during its first three years of operation.
This case is an important reminder of the obligations on employees (particularly senior executives) to act appropriately when leaving employment. Employers can take steps to protect their customers and business from unfair competition or unjustified actions by departing employees. This case also illustrates that substantial damages can be recovered where an employer is able to establish that its losses have been caused by an employee's breaches.