Welcome to part 2 of Employee Duties, Part 1 being Restraint clauses in Employment Contracts, which can be found here.
In Australia, restraints of trade are not only governed by the employment contract. Protection of employers’ interests is also provided by way of legislation and established legal and equitable principles.
Legislation
An often-overlooked example of legislative protection is Section 183 of the Corporations Act 2001 (Cth) contemplates that a former or current employee has a duty to their current or former employer to not improperly use information gained whilst employed by the company to gain advantage to themselves or someone else or to cause detriment to the corporation. This employee duty continues for an indefinite period of time. A breach of this provision could see the employee became liable for a civil penalty up to a maximum of 5000 penalty units, in other words, up to maximum penalty of $1.375m.
Fiduciary duties
Employees owe their current and former employers fiduciary duties.
Fiduciary duties stem from the unique relationship of trust and confidence that is found in the employment relationship. The shape and scope of the duties depends on the nature of the role and the employer’s business. Broadly, fiduciary duties include:
1. Duty of loyalty
a. Employees to prioritise their employer's interests over their own personal interests or those of third parties.
2. Duty of obedience
a. Employees are generally required to comply with lawful and reasonable instructions given by their employer.
3. Duty of care
a. Employees are expected to perform their duties with reasonable skill, care, and diligence.
4. Duty of confidentiality
a. Employees have a duty to maintain the confidentiality of their employer's proprietary information, trade secrets, and other sensitive business information. This duty continues beyond the termination of employment.
5. Duty to avoid conflicts of interest
a. Employees must avoid situations where their personal interests or relationships conflict with their obligations to their employer..
A breach of these fiduciary duties by an employee strikes at the heart of the employment relationship and can lead to various consequences, including termination of employment, civil liability for damages, and in some extremes even criminal liability.
Employers in appropriate cases may also seek injunctive relief or other equitable remedies to prevent or remedy breaches of fiduciary duties. It is essential for both employers and employees to be aware of these fiduciary duties and to conduct themselves accordingly to maintain a healthy and productive employment relationship.
Practical application for businesses
1. Do you consider the employee in question requires a restraint of trade in their employment contract? To answer this question, you should consider does the employee:
a. have direct access to your client and customers;
b. have knowledge of trade secrets, confidential information, sensitive financial information;
c. possess a highly specialised skill used by your business;
d. have the capacity to hurt your business if they were to be employed by a competitor;
e. or similar.
2. Employers seeking to restrain an employee should consider what is a reasonable in the circumstances, including things like:
a. The conduct you wish to restrain, eg contacting customers/clients engaged with whilst employed by the former employer;
b. The duration of the intended restraint, eg you must not contact former customers/clients of the employer for a period of 12 months, 6 months or three months. This is a cascading clause, in other words, if a Court determines the 12-month period unenforceable, then the six- month period will apply and so on.
c. The geographical area of the intended restraint, again this term may feature a cascading clause, eg Australia, Western Australia, Perth metropolitan area or Perth CBD.
d. Specifying the industry or directly listing the direct competition who could hurt your business should the employee go to work for them.
e. Whether specific remuneration or other benefit to the employee is appropriate for the kind of restraint sought.
3. Do you suspect a former employee has breached their restraint of trade?
a. Consider the employee conduct - does the conduct breach their restraint of trade provisions or their general employee duties as described above?
b. Gather evidence, namely, what documents, client details, company sensitive information has the employee taken? These items may have been emailed to a personal email, printed, downloaded onto a mobile hard drive or similar;
c. Is the former employee approaching your clients, customers, suppliers, or your staff?
d. Does the employee’s conduct require that you seek an immediate injunction to restrict specific conduct?
4. If you answer any of the above in the affirmative, you should seek legal advice. Our Employment Team would be happy to assist.
The information provided in this website serves as a general guide and does not constitute legal advice. It is based on our research and experience at the time of publication. Please consult our knowledgeable legal team for any specific inquiries or advice relevant to your circumstances, as the content may not have been updated subsequently.)
