Wrights Tanks Ltd ('the company') initiated legal proceedings in the Employment Relations Authority (ERA) against its ex-employee Josh Irwin. The company considered that Mr Irwin breached his post-employment obligations under the terms of his employment agreement when he ended his employment and set up a wastewater business in direct competition and approached their customers.
The company claimed Mr Irwin was in breach of his restraint of trade clause in his employment agreement which stipulated three years and a 50-kilometre radius restriction. It was also claimed that he breached non-competition and confidentiality clauses by stealing their intellectual property and their client lists.
While the ERA found a 3 year restraint of trade period far too long, they did agree he was in breach of a duty of fidelity and all other respects. The company was able to prove losses directly due to the Mr Irwin.
Based on the Authority’s determination it directed the party’s to attend mediation and urged them to make their best endeavours to resolve the issues, which they were unable to. Accordingly, the Authority was required to make further rulings regarding the matter.
The ERA awarded the company damages totalling $43,351.07 in respect of work lost due to Mr Irwin’s breaches of his employment agreement. The Authority also imposed a penalty of $7,500 against Mr Irwin for obstructing its investigation, of which it ordered $5,000 payable to the company and the remainder to the Crown.
This case highlights the importance of employers having robust contractual provisions under the employment agreements regarding an employee’s post-employment obligations, i.e. non-competition, confidentiality, intellectual property and non-solicitation and restraints of trade.
These clauses need to be reasonable, relevant and tailored to your business.
It also illustrates that in some circumstances where a former employee has breached their contractual obligations resulting in financial losses to an employer, then damages claims may potentially be able to be pursued for losses arising out of the employee’s breaches. It's important to note, losses must be tangible and proven.
Cases like this are not uncommon at all, and in current times where businesses are having to re-invent and pivot, coupled with staff wanting more flexibility in their work and possibly a change of circumstance this sort of thing can become even more familiar. Ensure your business is well protected in the above respects.
Please contact our Team if you wish a review of your agreements.