A recent decision demonstrates the importance of your business understanding the obligations owed by employees to former employers, particularly with regard to restraints and confidentiality clauses in employment contracts. Your business risks being joined in any proceedings if it encourages or condones breach of contract.
The case concerned an employee who breached the restraint clause in the contract of employment with his previous employer by undertaking employment with a competitor within a prohibited 12 month period.
Clearly influenced by the employee’s information that the restraint period was only 6 months, the new employer funded and took an active part in the proceedings on behalf of the employee.
It was not until evidence began to unfold that clearly showed the 12-month restraint, and that the employee had wrongfully forwarded work-related information to his personal email account, that the new employer reconsidered its position and withdrew its financial support of the litigation.
With no capacity to fund the litigation himself, the employee resigned from his new employment and agreed to the orders sought by his previous employer.
The previous employer then successfully sought orders to recover costs from the new employer. The Court found that the new employer was well aware that the employee could never have funded the litigation alone, and that the new employer was the cause of the proceedings and the litigation strategy. Additionally, it found that the new employer had a substantial interest in the outcome.
What are the lessons for your business from this case?
Conduct due diligence when employing new staff, especially those coming from a competitor.
Consider the addition of a warranty in your standard employment contract which provides that a new employee is not bound by any obligations to any former employer that may affect his or her role.
Be wary about becoming involved in any breach of contract claims against a new employee. Your business might end up with an expensive and time-consuming distraction as well as an adverse cost award.