Employee pays employer for breach of Agreement

Employment law is contract law with a twist. The Government has sought to address the power imbalance inherent in an employment relationship through legislation. If an employment relationship were based on ordinary contractual principles then an employer could offer any terms and conditions it chose. Or, if a person were already in employment, the employer could terminate him or her without cause.

Employment legislation

Employment legislation modifies ordinary contractual principles. Employment legislation sets minimum entitlements (minimum remuneration, mandatory holiday leave, the requirement for breaks). The law also requires fair processes. Even if an employment agreement expressly said an employer did not have to follow a fair process this would be overridden by employment legislation.

Given the principles of ordinary contractual law don’t apply, strictly, to an employment relationship it has always seemed somewhat strange that an employer can bring a claim against an employee for breach of his or her employment agreement (in the same way one party sues another for breach of contract). On the one hand this seems entirely logical and fair, on the other it seems strange to legislate for greater equality of power and yet allow the more powerful party (the employer) to pursue a claim against the weaker party (the employee) for breach of contract.

That said, while it has long been possible for such a claim to proceed, successful cases were few and far between. For whatever reason, it seemed employers had an uphill battle in pursuing a claim for breach of contract. In a fairly recent decision of the Employment Relations Authority, however, an employer was successful in bring such a claim.

Mr H leaves and taks confidential documents

Mr H, when leaving his former employer for a competitor, took numerous confidential documents. Now obviously his former employer was extremely concerned about what this information would mean in the hands of its competitor. The former employer therefore sought an injunction preventing the use of that material, as well as compensation for its taking.

The claim faced some difficulty because there was no evidence the information had actually been used. On that basis the claim for general compensatory damages was unsuccessful.

Special damages

An interesting part of the case, for me at least, was the award of $65,567.00 (no small chunk of change) for special damages. The special damages were claimed to cover the costs of the employer investigating the theft of the confidential information. Not only did it include the cost of computer forensic investigation, it also included the legal fees incurred in conducting the investigation (excluding the cost of bringing the claim to the Authority).

Exemplary damages

Exemplary damages were also sought by Mr H’s former employer. While no such award was made, the Authority did award a $12,000.00 penalty (50 percent of which was to be paid to the former employer). All up, Mr H’s decision to take the material ended up costing him more than $77,000.00. The orders were made on the basis Mr H had breached not only specific provisions contained in his employment agreement, but also the “implied duties of fidelity and of trust and confidence”.

The case needs to be considered through the lens of what Mr H actually did. The Authority found he purposefully took highly confidential information, which could not only benefit him but could also be extremely detrimental to his former employer.

That said, there are many cases where employees have committed equally egregious acts. The case of Mr H suggests misconduct of this calibre will be treated seriously by the Authority.

Investigation costs may be recoverable

For me the most striking part of the decision is the type of damages awarded. Special damages based on the costs incurred in investigating Mr H. Damages which included the legal costs of the investigation. I know many employers who spend significant money on ensuring a fair and proper process is followed when looking into whether an employee may have committed an act of serious misconduct. The decision of the Authority involving Mr H suggests that the cost of doing this may be recoverable if the employer can ultimately establish there was an act of serious misconduct (and the employee has breached his or her implied duties of fidelity and of trust and confidence).