A recent case* raised the question of where the line is to be drawn between the activities an employee is permitted to undertake in preparing for future competition with an employer and those that are not permitted, and whether the employee crossed that line.
The case also highlighted the risks to employers of failing to have effectively written employment contracts.
The plaintiff operated a business of mine site maintenance services on a mine site in the mid-west of Western Australia.
The plaintiff employed Mr. Doble as its site supervisor. In late 2019, while still employed by the plaintiff, Mr. Doble took steps to set up a business with a view to providing both mine site maintenance and mine rehabilitation services to the mine owner.
The steps he took were to:
- incorporate a company;
- negotiate the purchase by his own company of a contract for mine rehabilitation services at the same mine site from another contractor;
- arrange finance; and
- purchase equipment.
Mr. Doble’s company began providing services to the same mine site some weeks before his employment with the plaintiff ended on 31 March 2020, and continued to do so afterwards.
The plaintiff brought legal proceedings against Mr. Doble alleging:
- breaches of various legal duties including a duty of loyalty and fidelity, that it said were owed by him as an employee of the plaintiff; and
- breaches of confidentiality for using business information to support his company’s finance application to buy the mine rehabilitation services contract.
The plaintiff also brought legal proceedings against Mr Doble’s company.
The court decided that:
- Mr. Doble owed obligations in respect of the preparation of quotes and invoices for the plaintiff’s business to the mine site and that he breached those obligations by causing his own company to quote for work instead of submitting quotes on the plaintiff’s behalf. In effect, while still employed by the plaintiff he diverted work away from it to his own company.
- Also, the diversion of work by Mr. Doble to his own company was a contravention of the duties owed under the Corporations Act and his company was involved in that contravention.
- Mr. Doble also misused confidential information about the plaintiff’s turnover when he applied for finance, breaching a duty of confidence he owed to the plaintiff and enabling him to obtain finance sooner.
No Written Employment Contract
Significantly, the court observed that:
“The absence of a written contract of employment or a clear oral contract means the plaintiff is unable to point to express contractual obligations imposed on Mr. Doble”.
“… the plaintiff’s case relies on description of Mr. Doble’s role… into the matters for which Mr. Doble is alleged to have been responsible…”
Not Restricted from Securing the Mine Rehabilitation Contract
The court found that Mr. Doble did not owe the plaintiff any duty that restricted his freedom to cause his company to secure the mine rehabilitation services contract.
In assessing damages, the court concluded:
“The amounts so quantified are modest in comparison to the amounts claimed by the plaintiff. This is largely because I have held that Mr. Doble did not owe any duty that restricted his freedom to secure the VMS contract.”
A carefully written employment contract may have significantly improved the plaintiff’s case against Mr. Doble for the mine rehabilitation services contract opportunity and could have resulted in substantially higher damages.
Some implications for employers are:
- To not assume that the “general law” will always protect your business against actions by your employees. Some risks are only able to be managed by a properly written employment contract.
- To ensure that their written employment contracts are up to date, particularly for employees who have access to confidential information and influential contact with your customers.
- To ensure that the duties and responsibilities of the position are suitable and are not stated too narrowly.
Some implications for employees are:
- To understand that even where there is no written employment contract, a line is drawn between the activities an employee is permitted to undertake in preparing for future competition with an employer, and those that are not permitted. In some respects Mr. Doble crossed that line.
- A properly written employment contract can redraw that line more in the employer’s favour. An employee should carefully read an employment contract before signing it and consider taking advice about aspects he/she is unclear about.
*Chaffey Services Pty Ltd as trustee for Cataby Services Trust, trading as Cataby Services v Doble [No 4]  WASC 361