Worker faces harsh penalties for approaching ex-employer's clients, customers

ERA: Employer seeks to enforce post-employment restraints

Worker faces harsh penalties for approaching ex-employer's clients, customers

The Employment Relations Authority (ERA) recently dealt with a dispute where an employer sought to enforce post-employment restraints against a former worker who allegedly approached customers after leaving the organisation.

The worker argued that the restraints were unreasonable, while his former employer claimed breach of obligations and significant business losses.

The case highlighted ongoing tensions around post-employment restraints and their enforceability, particularly in situations where workers move to similar roles or start their own ventures.

The employer sought various remedies including damages, penalties, and costs, with the Authority having to weigh competing interests and evidence from multiple parties.

Background of the case

The dispute involved a filtering services company based in Richmond, Nelson. In December 2023, the ERA granted interim orders preventing the former worker from competing within 100 kilometres of the company's base until 30 June 2024.

These orders specifically restricted him from providing services to customers he had worked with in his last six months of employment. Neither the worker nor his colleague participated in this initial meeting.

The employer argued that the worker had retained company property without permission and approached customers to offer services, either for his own business or his new employer.

They also claimed he had used confidential information about customers and pricing structures to undercut their business.

Worker’s breach of employment clauses

The Authority examined whether the worker had breached several obligations, including duties of good faith, confidentiality, and non-solicitation. A passage from the determination noted:

"[The worker] breached a specific non-solicitation clause of his employment agreement and an implied fidelity obligation both during and after his employment ended."

The case became more complex when another worker was found to have assisted in breaching these obligations. The Authority observed:

"[The manager] had direct awareness of the non-solicitation restraint in question and that she aided and abetted [the worker] in breaching post-employment obligations."

Damages for employer’s loss of clients

Based on the evidence presented, the Authority ordered the worker to pay $14,854.36 in compensatory damages for the employer's loss of clients.

Additionally, it imposed penalties of $8,000 against the worker and $6,000 against his colleague, with both penalties to be paid to the employer.

The costs determination involved careful consideration of both parties' circumstances. The worker and his colleague argued against paying costs, suggesting they should "lie where they fall" due to various issues during the investigation.

However, the Authority found these arguments weren't relevant to the costs decision. In reaching its conclusion, the Authority applied established principles, stating:

"Taking all the factors identified in submissions into account and applying the Authority's discretion I consider that a fair costs award in favour of [the employer] to reflect their interim and substantive success in all the circumstances is one of an application of the notional daily rate and legitimate disbursements."

The Authority's final order required the worker to pay $7,187.50 in costs plus disbursements of $454.17, with his colleague being jointly responsible for $4,937.50 of the total amount.

This decision reinforced the importance of adhering to post-employment obligations and the potential financial consequences of breaching them.