Australia: Employment Update: April 2006 - Employees Moving On?

The importance of double-checking your employment contracts and having a sensible notice period in place.

The decision in AMP Services Ltd and Arrive Wealth Management Ltd v Manning [2006] FCA 256 was given on 24 March 2006 after a series of hearings going back to September 2005. This case illustrates a number of potential pitfalls for employers in seeking to protect information about an organisation’s clients and the difficulties of enforcing restraint clauses.

Ms Manning and Ms Harkness were both employed by AMP Services Ltd (AMP) as financial advisors. However, they worked in the business of Arrive Wealth Management Ltd (Arrive) which is a member of the same group of companies and not for AMP.

Ms Manning and Ms Harkness were well regarded financial advisors, Ms Manning being Arrive’s biggest fee generator at the time. Indeed, in the Judgment, Ms Manning is described as a ‘top-notch financial planner’ by the Judge himself.

In January 2004, Ms Manning went to work for a competitor business, Goldman Sachs JBWere Services Pty Ltd (Goldmans) and soon afterwards Ms Harkness and a number of others from AMP did the same. A number of Arrive’s clients went with them too and, after a few weeks, a significant part of Arrive’s business was lost.

Ms Manning was required to give four weeks notice and Ms Harkness only two.

Ms Manning resigned on 20 January. The parties disputed whether or not the contract had been brought to an end prior to the expiry of the four week notice period and the Court found that ultimately the contract was terminated on 16 February 2004 by Arrive writing to Ms Manning and saying that she had been summarily terminated.

It was alleged that Ms Manning improperly approached Arrive’s clients after she had resigned but during the period in which she still remained an employee of AMP on notice.

AMP sought to recover over $4 million dollars in respect of that lost business. It based its case on the following causes of action:

1. Breach of contract - relying on a post-employment restraint clause and confidential information clause in the employment contract.

2. Breach of the Corporations Act 2001 (Cth).

3. Breach of the duties of good faith and fidelity.

4. Breach of fiduciary duty - including duties on Ms Manning to:

   4.1 act in all her dealings with clients in the best interests of Arrive.

   4.2 to protect Arrive’s business.

   4.3 during her employment, not to favour her own interests or the interests of another business over those of Arrive.

   4.4 not to induce or entice clients away from Arrive.

   4.5 to act in all her dealings with other Arrive employees in the best interests of Arrive.

   4.6 to induce or entice clients away from Arrive.

5. A claim of conspiracy

First, it is important to note the problems the Court raised in relation to the employees working for Arrive, but their contracts being written in favour of AMP. A contract expressed to be given in favour of one entity cannot easily be implied to apply to another.

All the claims against Ms Harkness were rejected and only one claim was established in relation to Ms Manning - a breach of her fiduciary duties.

• The post-employment restraint clause was ineffective in that it was expressed to protect ‘a competitor of AMP’ and not of Arrive as it should have done. AMP and Ms Manning’s new employer, Goldmans were not in competition with each other. Further, the Court found that even if it did apply, it would not apply to Manning’s employment during the period of notice (because it was expressed to only apply post-employment).

• The argument in reliance of the confidential information clause of the contract fell down too as this similarly protected ‘AMP’s business and affairs and that of [AMP’s] clients’ and not Arrive’s.

• The claims based on breaches of the Corporations Act also failed to get anywhere because the employment contracts were in favour of AMP and not Arrive. The employees had caused no detriment to AMP.

• In relation to Ms Manning, because of her position of seniority, she was found to owe fiduciary duties to Arrive despite the absence of a contract of employment between her and Arrive directly. However, whilst the Court found she committed some breaches of those duties, her obligations came to an end at the end of the employment on 16 February 2004.

• The claim of conspiracy failed.

Arrive was unable to recover anything like the $4million dollars it had claimed and the Court found that any loss recoverable would be limited to the short period of time between when Ms Manning resigned on 20 January and her employment coming to an end on 16 February. In essence, the total value of the claim being the income Arrive would have earnt for each client during that period. The quantum of damage remains as yet unresolved.

This decision highlights some important considerations for employers:

• Check that your employment contracts are expressed in favour of the right entity.

• Check that any confidential information and restraint clauses are neatly drafted, appropriate and workable.

• Ask, what really is a sensible notice period, and how much damage could the business suffer if one of your employees went to work with a competitor?

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.