October 2014

The tastiest schnitzel in town zis only $84,143.60 - good faith in employment

Two recent decisions of the Federal Court and Federal Circuit Court of Australia have emphasised the importance of the duty of good faith and fidelity that employees owe their employers.  There is an implied term in every contract of employment whereby the employee:

... shall honestly and faithfully serve his master; that he shall not abuse his confidence in matters pertaining to his service, and that he shall, by all reasonable means in his power, protect his master’s interests in respect to matters confided to him in the course of his service: Robb v Green [1895] 2 QB 1 at 10-11.

For an employee, senior or junior, there is often little excuse for bad faith conduct.  Being an entrepreneur or simply trying to make a buck are not excuses for disloyal and unfaithful conduct during employment. 

As we discover, good faith does not allow employees to simply add gravy to their meal.  An employee is paid a wage to act in the best interest of their employer; there is no partial service or allowance for vested interests.  Employees should always be transparent with their personal interests in any duty performed, or transaction undertaken, for their employer.  The duty can be a powerful tool in the hands of a determined employer.

Amponsem v Laundy (Exhibition) Pty Ltd [2014] FCCA 2206

Mr Amponsem was the head chef of the Laundy Hotel.  Part of his duty was to order suitable stock for the hotel.

Mr Amponsem identified a new chicken schnitzel product.  The Laundy Hotel liked the new product and asked him to order it for the Hotel.  97,040 schnitzels later, the Laundy Hotel summarily terminated Mr Amponsem’s employment.

Mr Amponsem did not tell his employer that his wife’s company was sourcing and then resupplying the schnitzels to the Hotel at a mark-up of $1.00 a schnitzel.  When schnitzels went missing, the Hotel discovered Mr Amponsem, or his wife, or together, were profiting from the arrangement.

In a rare display of chutzpah, Mr Amponsem sued for his unpaid annual leave and the Hotel cross-claimed for its schnitzels.  The Court awarded Mr Amponsem his annual leave of $11,305 and found in favour of the Hotel on its cross-claim.

The Court observed that the duty of good faith:

… has both a positive and a negative aspect.  In its positive aspect, the term requires the employee to perform with fidelity the tasks he or she is required to undertake under the employment contract; that is, the employee must perform such tasks for the benefit, and only for the benefit, of the employer.  In its negative aspect, the term prohibits the employee from undertaking certain conduct.  This includes entering into transactions in which there is a real conflict between the employee’s interests and the interests of his or her employer, and using the employee’s position to make a gain for the employee or for some third person.

Employees also have fiduciary duties.  Employees cannot, without the informed consent of the employer, promote their personal interests by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between their personal interests and those of the employer.

Mr Amponsem could have procured the schnitzels from the supplier direct at a cheaper cost for his employer.  Yet he procured them through his wife’s company, at a mark-up and greater expense for his employer. 

Mr Amponsem said he committed no wrongdoing.  Mr Amponsem had procured the schnitzels in his own time at his own expense.  The Court said it ‘would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognising an impropriety that would have been apparent to an ordinary man’.

Mr Amponsem was ordered to pay his employer $84,143.60 for the schnitzels.

An interesting aspect of this case was Laundy Hotel’s refusal to pay Mr Amponsem his accrued but untaken annual leave entitlements on termination.  Strictly speaking, to have not paid his leave entitlements on termination was a breach of the Fair Work Act 2009.  However, in the interests of justice, the court made one order; that Mr Amponsem pay his employer damages less his leave entitlements unpaid.

APT Technology Pty Ltd v Aladesaye, In the matter of APT Technology Pty Ltd [2014] FCA 966

In this case, we learn that an employer may also be able to make use of the obligation of good faith to gain an injunction to stop a former employee from harming the business.

Mr Aladesaye, whilst employed by APT Technology:

  • established his own business, AVRE;

  • conducted the business in competition with his employer;

  • accessed and copied his employer’s information, including by forwarding it to his personal email account; 

  • did business through AVRE with his employer’s clients;  and

  • kept his activities hidden from his employer.

Once discovered, Mr Aladesaye was summarily dismissed.   It did not matter that his employer was closing the Adelaide office where Mr Aladesaye was based; APT Technology was still intending to service its clients.

APT Technology did not have a post-employment restraint in its employment contract with Mr Aladesaye.  However, it obtained an interim injunction against Mr Aladesaye soliciting its clients on the basis Mr Aladesaye breached his contractual and statutory duties; the injunction was justified to protect the confidences of his employer.  Due to his disloyal conduct, he had a head-start over his employer and it was appropriate to protect his employer from his breaches of duty.

Conclusion

Unfortunately, some employees will be dishonest.  Sometimes, the chance or opportunity for some gravy on top is too tempting. 

Employers are protected by the duty of good faith but employers can take other steps to better protect the business.  Some steps include:

  • having robust employment contracts, with post-employment obligations;

  • implementing policies and training on secret commissions and conflict of interests;

  • having policies on computer and email surveillance to be able to catch evidence of any misconduct;  and

  • rotating duties, conducting audits and requiring leave to be taken as a means to identify any unusual practices.

But even without these risk management strategies, the employee obligation of good faith can, in the right circumstances, be applied and enforced.
 

Author: James Mattson

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