It’s one of the most difficult areas of employment law : what to do where an employee has acted in breach of a restraint, or an obligation of confidentiality. But a recent decision of the Employment Court gives heart to employers – where you can establish breach, some serious consequences may follow for employees.
The case is Rooney Earthmoving v McTague, Whiting and Bartlett (unreported, Employment Court Christchurch, 23 April 2012). It concerned three men, each of whom had been employed by the plaintiff before establishing a competing company (BMW Contracting). A previous decision had established that the men had variously acted in breach of a number of contractual obligations owed to the former employer, including enticing away staff, securing customers and using the employer’s confidential information.
This most recent decision concerned the assessment of damages which should follow the decision on liability. And it is unashamably a fiesta for lawyers.
You see, the law in this area is woefully inadequate. The jurisdiction of the Employment Court is limited to contractual claims – often meaning that plaintiffs have to bring a simultaneous action in the High Court to cover all possible causes of action. And the employment tribunals can’t make orders against parties who weren’t part of an employment relationship – meaning that the former employer can only claim against its ex-employees (not the new employer, which is often the competing entity).
And, to boot, New Zealand doesn’t have any contributory negligence laws – which means that when (as happens here) loss is found to have been suffered by the employer, each of the employees has to be held jointly and severally liable to repay the damages (instead of the Court working out who owes what proportion).
So, against this background, this case gives helpful guidance on a number of fronts.
First, the contractual measure of loss will often do just fine. In Plain English, these employees were liable to put the employer in the same position it would have been in if the various contractual breaches had not occurred. In this case, that meant a complicated assessment to work out exactly what business the employees had taken away from their old employer as a result of their breaches.
Secondly, some limitation had to be applied to the damages assessment (ie at some point, if the employees hadn’t acted in breach they would have become legitimate competitors). This involved the application of the doctrine of remoteness – an enormously complicated and contentious area of law in itself.
Finally, the quantum of loss assessed here was, on any view, massive : $4,290,000 – and, of course, because the debt is owed jointly and severally the employer can go after one, two, or all of the ex-employees for the whole amount.
As you can probably tell, this case is an important one for lawyers who may be called upon to advise in cases involving breaches of restraints and confidentiality.
But it is more than that. It is a decision that illustrates that the Court will not hold back in ordering massive damages – where a case justifies that. And that sort of order will not be a “finger to the wind” type of award, but an astute objective assessment of actual contractual loss.