News & Insights

Ancient Order of Foresters in Victoria Friendly Society Limited (Foresters) has been ordered to pay more than $6.2 million to Lifeplan Australia Friendly Society Ltd (Lifeplan), the former employer of two of Foresters’ senior employees. The Full Court of the Federal Court found Foresters to be knowingly concerned in the breaches of the employee’s fiduciary and confidentiality duties to Lifeplan and made an order for an account of its profits.

In March 2016, Justice Besanko of the Federal Court ordered the employees to pay more than $24,000 each to Lifeplan for profits made from a new joint venture with Foresters. The set up and establishment of the joint venture relied heavily on Lifeplan’s confidential information which was acquired and utilised by the employees while still employed by Lifeplan. One of the employees was also found to be in breach of the employee statutory duties arising under the Corporations Act 2001.

Lifeplan also claimed that Foresters should account for its profits to the tune of $30 million due to its involvement in the joint venture. This was rejected by Justice Besanko at first instance because despite being involved in the breaches, the Court was not satisfied that Foresters was knowingly concerned pursuant to the Involvement in Contraventions provisions in the Corporations Act.

On appeal by Lifeplan, the Full Court found that Foresters was knowingly concerned with the actions of Lifeplan’s former employees that “went beyond mere knowledge” and it did “nothing to discourage” the employees. Foresters “was acting in concert” with the employees and was an “active” participant in the employees’ attempts to grow the venture while still employed by Lifeplan. The employees, for example, prepared and used a business plan based on Lifeplan’s confidential information and solicited new business at industry conferences for the new venture while still employed. One of the employees valued the new business coming out of the conferences to be worth in excess of $17.5 million when he communicated his “encouraging” news via email to Forester’s CEO.

The Full Court said that “there could be no doubt” that Foresters was knowingly concerned because without the business plan which contained “some of the phraseology”, SWOT analysis and budgets of Lifeplan, the “proposed business would not have gone ahead”.

What Employers need to know

Employers who are provided with information from prospective employees or business partners should:

• question the origin of such material presented to it; and
• consider the surrounding circumstances, activities, and whether the information should be used.

Courts will apply the Involvement in Contraventions provisions in section 79 the Corporations Act to situations where an employee owes a current or former employer duties of trust, honesty and confidentiality under the general law, statute and contract.

While the Corporations Act provides protection of confidential information, employers should ensure that critical documents are accurately labelled and managed as being confidential. To protect confidential information, well drafted contracts and policies which identify and safeguard the management and control of confidential information should be introduced.

Employers can also protect its confidential information by ensuring its contracts with employees contain enforceable restraints both during the period of employment and post-employment.

If you would like us to evaluate whether your company’s confidential information is adequately protected or to review your contracts and policies, please contact us.

This article was written by George Haros – Employment, Safety and Migration.