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Employer who 'Poached' Employee Ordered to Pay Former Employer's Costs in Restraint of Trade

Ordered to Pay

HRX Pty Ltd v Scott [2013] NSWSC 451 (1 May 2013)

Background

A former employer HRX Pty Ltd ('HRX') commenced proceedings against a former employee Mr Scott under a restraint of trade after failing to obtain non compete undertakings from the employee and the new employer Talent2. In the proceedings Talent2 initially backed the employee in the proceedings by covering his legal costs, however it withdrew that support after it discovered that Scott was subject to a 12 month restraint rather than a 6 month restraint which he had informed them was the case.

He also advised Talent2 that he possessed material that could be confidential information of HRX, further have also emailed himself some other material that could have been considered confidential, but indicated that he had not used the material since starting his employment with Talent2.

Scott was advised that Talent2 would no longer support him in defending the action by HRX, and that he should either resign or be dismissed from Talent2. Scott resigned his employment with Talent2 and then attempted to settle the proceedings with HRX, yielding to some of the restraint orders sought by HRX.

Decision

Her Honour Bergin J. of the NSW Supreme Court gave judgement in favour of HRX and took the unusual step of ordering Talent2 to pay HRX's legal costs even though Talent2 was not a party to the proceedings. She did so on the basis that Talent2 initially financed Scott's legal costs due to the commercial advantage it believed it would obtain from Scotts employment with Talent2, otherwise she said the employee would more likely than not, have not opposed the restraint of trade and orders.

Whilst her Honour found that Talent2 had ceased its support once it became aware of the breaches by Scott, it did not make any attempt in the first three months of employment to make suitable inquiries regarding the restraint and Scott's conduct.

She said interestingly, that employers who poach employees from other employers for a commercial advantage need to ensure and make suitable inquiries regarding restraints and potential breaches by the employee, and where an employer funds litigation it must be exposed to the plaintiffs costs in a accordance with section 98 of the Civil Procedure Act 2005. In this case HRX did not seeks its costs against the employee.

This means ……

Employers who seek to gain a commercial advantage by poaching an employee from another employer, should firstly make themselves aware of the employee's obligations under a restraint of trade, not encourage any breach and beware of offering to fund an action in defence of a restraint of trade case as you may be exposed to the former employer's costs.

Please call Brett Wilson or Nikolina Gaute if this matter is of interest to you. Clearly the enforceability of a restraint and its reasonableness must be assessed prior to any action by a new employer.