In Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248, Besanko J provided a helpful outline of the principles that are used to determine whether employees have breached the fiduciary duties that they owe to employers.
The Facts
Mr Woff and Mr Corby were employees of funeral fund, Lifeplan Australia Friendly Society Ltd (Lifeplan). During the course of their employment with Lifeplan, Mr Woff and Mr Corby, then funeral fund manager and national sales manager of Lifeplan, established a joint venture, Funeral Planning Australia Pty Ltd (Funeral Planning Australia). Shortly thereafter, Mr Woff and Mr Corby left Lifeplan and became employees of the Ancient Order of Foresters in Victoria Friendly Society Limited (Foresters). Funeral Planning Australia entered into a contract with Foresters under which it would provide Foresters with certain promotional and marketing services.
Mr Woff and Mr Corby did the following things:
- Contacted funeral directors with whom they had come into contact while employed by Lifeplan for the purposes of attracting their business to Foresters and Funeral Planning Australia.
- Sent a number of Lifeplan’s valuable business documents to their personal email addresses with a view to using them to help establish their new business, and a mailing list of funeral directors from whom Lifeplan solicited business.
- Used confidential information obtained while they were employed by Lifeplan in order to prepare a ‘Business Concept Plan’ for Funeral Planning Australia.
- Held a meeting with a major client of Lifeplan at which they discussed the possibility of that client transferring its business to Funeral Planning Australia and Foresters once its contract with Lifeplan expired.
Fiduciary Duties
Besanko J explained that an employee owes fiduciary duties to his or her employer. This means that an employee cannot do either of the following things:
- Make or pursue a personal gain in circumstances in which there is a real and substantial possibility of a conflict of interest arising between the personal interests of the employee and the interests of the employer.
- Make or pursue a personal gain based by using his or her position as an employee or by using information or opportunities received in the course of his or her employment.
If an employee does make any such personal gain, their employer will be entitled to an account of profits. This means that the employee must pay the employer the amount of profit that he or she made as a result of the breach or breaches. If no profit is made, or if the profit that was made is limited, an employer may seek equitable compensation. This means that the employee must compensate the employer for any loss that it suffered as a result of the breach or breaches.
These fiduciary duties are closely related to the implied duties of fidelity and good faith that arise under employment contracts, and the implied or equitable duty of confidentiality to which employees are subject. As Besanko J made clear, all three sets of duties can be breached by the same act or series of acts.
Decision
Besanko J found that Mr Woof and Mr Corby had breached the fiduciary duties and duties of confidentiality that they owed to Lifeplan. They were awarded to account to Lifeplan for the profits that they made.
Lessons for Employers
Employers should be mindful that the equitable principles concerning breaches of fiduciary duties provide them with an avenue of recovery against employees who misuse confidential information obtained during the course of their employment in order to pursue a personal gain.
However, as Besanko J explained when discussing those principles, not all ‘preparatory steps towards new employment or a new business’ that are taken by employees will be found to breach their fiduciary duties. Whether this is so will depend on all the circumstances of the case, including whether the employee did anything to ‘fraudulently undermine’ the employer and thereby break the trust and confidence between the parties.
If employers are contemplating proceedings based on a breach of fiduciary duties, they should be careful to select the remedy that is likely to provide the best return. If the profits earned by the employees as a result of the breach are likely to be greater than the loss sustained by the employer as a result of the breach, an account of profits should be claimed. If not, equitable compensation should be claimed.
How can JFM Law help?
If you are an employer who is concerned that a current or ex-employee may be using or may have used your confidential information in competing with your business, or if you are an employee who is concerned about setting up a business in competition to your ex-employer or working for a competitor contact JFM Law on (02) 9199 8597 for a no obligation chat. If you would rather get in contact through email, send your question through or by email at wehelp@jfmlaw.com.au.
The information contained in this post is current at the date of editing – 3 October 2024.
