Employment Law Task

Question 1

Sandra works as an accountant for Beancounters, a small accounting firm in Ballarat. From the time she joined she had hopes of starting her own business. Following a heated exchange of words with Victor (her supervisor), Sandra quits. When she collects her belongings she also takes her address book which includes the contact details for most of Beancounters clients for whom she had direct responsibility. Later, Sandra opens up her own accounting firm in Ballarat, contacting many of the clients from the address book. In addition, Sandra begins to promote her business aggressively online (using the same techniques as did her past employer), offering boutique financial packages to generate customer interest. Almost all of her previous clients take up these new packages as have others who had shifted their business from Beancounters in the past few years.  Required: Discuss the legal issues in employment law arising from this scenario. (40 marks)

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Answer 1

Restrictions on employment

In Australia, the common law doctrine of restraint of trade applies to restrictions on employment. The doctrine requires that for any such restriction to be legally enforceable, it should be reasonable for the parties and for the general public. A legitimate interest should be at stake, and the restraint should be limited to protecting the particular interest (Australian Competition Law, 2014). Consequently, restraints of trade are usually an exception to the judicial policy of free trade. However, legitimate business interests of employers are protected. In determining what is legitimate, the employee’s connections with customers are considered as the employer’s property. This is partly because the employer is the one who puts the employee in contact with the customer. The brand or reputation of the employer is also an influencing factor in the employee’s relationship with the customers. On the other hand, the employees own skills and personal knowledge (e.g. talent, creativity and intuition) are difficult to restrain. For example, the influence that an employee is able to exert over the customers could be a personal talent, e.g. relation building skills. This ‘asset’ cannot be attributed to the employer. It is not so easy to demarcate the two types of knowledge because they are interlinked, and they influence the learnings by the employee (Christopher, 2012).

 

However, employees can be restrained from soliciting those specific clients with whom they have worked while being part of the organization e.g. Stacks/Taree Pty Ltd v Marshall [No 2] [2010] NSWSC 77. This is perhaps because employee’s insights about such customers can be more easily attributed to the employer. Again, exceptions may be in order if the customers have been acquired by the employee due to his personal contacts. However, if the employee is actually known to use any particular information gained in an employment after he leaves the organization, the employer’s claims for restraint or damages gain strength. Viewed from another perspective, restraint may not be applicable if a customer follows an employee and initiates contact with him on his own volition (Christopher, 2012).

 

Furthermore, the usefulness or novelty of the information, and the difficulty in its acquisition or replication is an important factor in determining the duration of the restraint. Firm or industry specific characteristics are important and need to be factored. Duration may also depend on the time it may take for the employer to fill the void by hiring a replacement and making him as effective as the leaving employee. Also, the time it takes for the employee to lose influence over the clients may also be a factor. To summarize, restraints in respect of particular knowledge should ideally be limited to the specific customers being dealt with by the employee while in employment, and the restraint should be for a specified period. Importantly, non-disclosure agreements (NDAs) cannot transcend these principles even if they are worded to circumvent the spirit of the principles (Christopher, 2012).

 

Sandra’s case

Sandra contacted many of the clients from her address book, which included the clients with whom she had a direct relationship. She also used the techniques being used by her while she was employed with Beancounters to promote her business aggressively. Most of these clients took up the packages being offered by Sandra. Even other clients of Beancounters, with whom Sandra may not have dealt with during her employment, shifted their business from Beancounters to her firm over the next few years. Further, the boutique financial packages created by Sandra may have been those developed due to her ingenuity.

 

The legal issues

Based on the discussion above, Beancounters could have sought to restrain Sandra from specifically soliciting the customers she was handling in Beancounters, albeit for a limited time period. Apparently the employer did not seek to restrain Sandra after she left. However, based on relevant clause in their contract or the NDA, Beancounters can seek suitable damages specifically with respect to Sandra’s business with Beancounters’ clients. The fact that she intended to start her own business is not relevant as she cannot be restrained from harbouring such ambitions. Also, she cannot be prevented from starting her business as that would be too restrictive from the point of view of freedom of trade.

 

In Birdanco Nominees Pty Ltd v Money [2012] VSCA 64, the Supreme Court of Victoria allowed restraint and awarded damages in line with the above approach. This is particularly relevant because Beancounters operates in Ballarat, Victoria. In the case, a 3-year restraint was allowed on an accountant (Mr. Money) of an accounting firm (Bird Cameron). The restraint was for specific clients with whom Money had a direct relationship.

 

Question 2

Tom works for the ACT Government as a Federal Police officer.  Prior to his appointment he was living in Peru.  In Peru, Tom was convicted on charges involving the possession of illegal drugs.  Throughout the application and interview process with the ACT Government Tom was asked about many things relating to work experience but not specifically about past convictions.  However, during in this recruitment process Tom does tells lies about his past work experience.  Some months following his appointment, during a routine international check of staff, the Victorian Government discovers that Tom has a past conviction overseas.  In response to this conviction Tom is summarily dismissed and the ACT government seeks to recover removal and appointment costs from Tom. Required: Discuss the legal issues in employment law arising from this scenario. (40 marks)

 

Answer 2

The case under consideration needs to be discussed from two perspectives. Firstly, whether the dismissal was wrongful, and, if so, the remedies available to Tom. Secondly, whether the ACT government can recover the removal and appointment costs from Tom.

 

Unfair dismissal

The Fair Work Act 2009 (Cth) (FWA) considers a person to be unfairly dismissed if the Fair Work Commission (FWC) is satisfied that, inter-alia, the dismissal was harsh, unjust or unreasonable (s385). A dismissal is unfair if there is no valid reason for the dismissal related to the person’s capacity or conduct. The dismissal is also unfair if the employer does not inform the employee the reason for dismissal and the employer does not give him an opportunity to respond (s387). Further, the dismissal should not be based on the prohibited reasons such as temporary absence from work due to illness or due to discrimination e.g. based on race (Fair Work Ombudsman, 2014).

 

Also, a ‘fair go around’ principle, used in the Loty and Holloway v Australian Workers’ Union [1971] AR (NSW) 95, is applicable for both the employees and the employer (s381 (2)). In addition, pre-contractual misrepresentations may provide contractual remedies under common law (Australian Contract Law, 2014). Section 1.07 of the Fair Work Regulations 2009 defines serious misconduct by an employee to include wilful or deliberate behavior that is inconsistent with the continuation of the employment contract. Serious misconduct also includes conduct that poses a risk to the reputation of the organization.

 

Was Tom’s dismissal unfair?

Based on the above discussion, it is apparent that hiding the information about his previous convictions during the selection process is a pre-contractual misrepresentation and deception. This is particularly true because Tom had applied for selection as a police officer. Further, the fact that he continued to hide the previous conviction even after being selected is a serious misconduct. Continuation of a person with serious previous conviction in the Federal Police force is surely damaging to the reputation of the force. Intuitively, the faith of the public is important to maintain respect for law in the society. So Tom’s dismissal was based on a valid reason. Also, considering the nature of misconduct, there was no requirement to give a notice of ending of employment to Tom. However, Tom is entitled to an opportunity of being heard to explain his position. On this ground, Tom’s dismissal is unfair. However, the ACT government can try to recover the removal and appointment costs based on the breach of contract due to misleading or deceptive conduct.

 

Remedies for unfair dismissal

Section 390 provides the remedies available with FWC for unfair dismissal. The remedies include reinstatement, reappointment and compensation. Also, section 117 of FWA mandates the requirement for giving a notice for termination. However, according to section 123, the requirement for notice does not apply to termination due to serious misconduct. Damages can also be sought by the employee under common law for breach of contract (The Law Handbook, 2015b).