Two ex-employees of the appellant Lifeplan, a company engaged in the business of fund management and the provision of investment products including funeral bonds and pre-paid funeral products, joined Foresters, another friendly society in late 2010.
Foresters’ business included similar investment products and pre-paid funeral products as that provided by Lifeplan.
Shortly prior to leaving Lifeplan, the employees established Funeral Planning Australia Pty Ltd (FPA) in conjunction with Foresters with the intent of replacing Lifeplan in the funeral fund market.
The Federal Court found that the employees had breached their fiduciary and contractual obligations to Lifeplan in that they:
- disclosed to Foresters and used Lifeplan’s confidential and valuable information in drafting a business proposal for FPA;
- attempted to solicit business from Lifeplan’s clients and denigrated Lifeplan’s services in the process, whilst still employed by Lifeplan;
- took and utilised Lifeplan’s mailing list of clients and potential clients; and
- copied Lifeplan’s contracts, marketing and administrative documents for their new business with Foresters.
The Federal Court also found that Foresters knowingly assisted and induced the employees to breach their obligations to Lifeplan. It was evident from the business proposal submitted by FPA to Foresters that most of the information disclosed was Lifeplan’s confidential information. Yet despite this, executive members of Foresters did not require the employees to remove Lifeplan’s information from the proposal before it was submitted to the Board of Foresters.
On appeal the Full Court reversed the decision of the trial judge in respect of an account of profits and Lifeplan were awarded $6,558,495, which represented 5 years of profit made by Foresters from the fund established by the employees.
Foresters was held accountable to Lifeplan for profits made because the business that generated them would not have been possible without knowingly utilising the information dishonestly gained by the employees. The Full Court also found that in the case of equitable duties, a broad approach to assistance is appropriate, such that it could be said that Foresters provided assistance to the employees to breach their duties.
The key take aways for employers from the Full Court’s decision are:
- Be mindful when hiring executive employees about the information they bring to your business, in case it is confidential or valuable information obtained from a previous employer;
- Be careful not to do anything that could be construed as assisting an employee or prospective employee to breach fiduciary or other duties owed to another employer.
- An employer can be held liable to a competitor for profits earned in their business where the profits are attributable to an employer’s involvement in a breach of an employee’s duty to another employer.
To read the full decision, click here.
Many thanks to solicitor Prue Campbell for her assistance in preparing this blog.