The June Employers Assistance Newsletter has a case study in regarding two senior employees who collaborated whilst still employed by the employer to start their own business.

The courts upheld that the two employees had colluded in a blatant breach of their common law, statutory and express contractual duties, and this was aggravated by their positions of responsibility. The employer was awarded $223,500.00

This case was the extreme where the employees had set up a separate company to their employer and tendered for the same business undercutting the employer and winning the contracts for themselves. The courts calculated the profit that might have been made and awarded this to the employer.

This outcome should reassure smaller organisations' that have experienced senior staff setting up their own company and then leaving their employ that action can be taken against them. It should also be a deterrent to current employees considering breaching their employment contractual responsibilities. The Authority according to the Employer Assistant's Article described the employee's behaviour deceptive, dishonest and underhanded and wished to "soundly denounce" their conduct. In addition to awarding the calculated profits that the employee would have enjoyed the employees were fined $5000.00 each for breach of contract.

 

We and clients agree with the Employment Authorities decision due to having experienced employees leaving to start the same business in opposition which has obviously been planned and set up whilst under our employ.

Many employees take up employment with an employer, learn the systems and processes, get to know the client data base which has been developed during the time of the employment at the employers expense and then feel that they can start up a business and do it for themselves.

 

Sometimes employees feel that if they successfully develop processes or business for an employer whilst employed by them, it belongs to them and not the employer. What they don't realise is that they are being paid by the employer and developing processes and business is part of their role. In most cases the employee takes more than what they have developed e.g. ready built data bases. Technology has made it easy for the disingenuous employees who lack integrity and who are quite often senior key people in positions of trust, to steal from their employers.

Interestingly these employees use extraordinary reasons to justify their behaviour.
Employers need to be aware that if their senior members of staff who are usually proactive in the organisation, suddenly become quiet, stop participating in new initiatives, negatively twist communication and becoming critical of the management or how the organisation is being run, that this could be a sign of an employee justifying to themselves reasons for either leaving or starting up their own business against the employer.

Many Employment Agreements have a restraint of trade built into them and sometimes employees blatantly dismiss these clauses and take the attitude that they will not hold up in a court of law as they have to make a living. Yes they do have to make a living but not at the expenses of someone who has been providing them a living. This case proves that the Restraint of Trade clause will be upheld by the law.