Court Finds Ex-Employee Did Not Breach Confidentiality Clause and Was Actually Just Likeable
The Western Australian Supreme Court ruling in ASPL Pty Ltd v Rajakaruna [2019] WASC 269 explored allegations a previous employee had breached a confidentiality clause in his employment contract. The former employer claimed Mr Rajakaruna breached the confidentiality clause by soliciting clients of their business and breaching his fiduciary duties.
Mr Rajakaruna, who was a senior accountant at Horizon Accountants and Advisory (the trading name of ASPL) gave notice to the firm of his resignation one month before his departure. The Director and secretary of the company, Mrs Cohen, subsequently met with Mr Rajakaruna on several occasions to discuss clients, confidentiality and the non-solicitation clause in his contract. The defendant stated he had no intention to solicit clients from the firm.
Subsequently, after Mr Rajakaruna left the firm, Mrs Cohen discovered that he was working with 18 now former clients at his new workplace.
The court case
Mr Rajakaruna provided evidence in court the clients in question had sought him out after his departure from the firm. This was either by telephone (for those who had his mobile number), social media or by coincidental run-ins. Clients told the defendant they wanted to follow him wherever he went and continue with his services.
Mr Rajakaruna’s evidence also showed he had no records of the plaintiff’s clients or customers and did not take any confidential information from the firm. All former clients of ASPL provided affidavits validating Mr Rajakaruna’s testimony and confirmed the defendant did not contact or approach them for business.
Often non-solicitation will be provided for in a contract with both confidentiality and restraint of trade clauses. In this case, the relevant clauses only related to confidentiality rather than restraint of trade.
The decision
Justice Jenifer Smith ruled that the plaintiff had failed to make out a case. Importantly, all previous clients of the plaintiff, who were now clients of Rajakaruna, ceased to be clients by their own choice. Further, there was no evidence the defendant induced, enticed or encouraged any client to cease being a client of the firm and follow him to his new workplace. The judge was also not satisfied the defendant had breached any confidentiality clause as there was no proof he had used confidential information owned by the plaintiff for his benefit.
What can we take from this?
While confidentiality clauses and restraint of trade terms are legally binding in an employment contract, some actions may not amount to a breach. While this was a very unique situation, the defendant, in this case, was not held liable because the actions of the clients could not amount to his doing. Of course, liability will depend on the circumstances of a case, and the specific wording of contractual clauses.
This is an extremely complex area, so if you think a former employee may have breached a confidentiality agreement or restraint of trade clause, or you are being subject to an allegation yourself, it is best to seek legal advice.