[2001] HCA 45
Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165
[2001] HCA 31
Pittmore Pty Ltd v Chan
Chan v Tan (2020) 104 NSWLR 62
[2020] NSWCA 344
R v Byrnes (1995) 183 CLR 501
[2019] NSWCA 11
Sidameno (No 456) Pty Ltd v Alexander [2011] NSWCA 418
Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85
Judgment (63 paragraphs)
[1]
323
FSS Travel and Leisure Systems Ltd v Johnson [1998] IRLR 382
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179
Harcus Sinclair LLP and another v Your Lawyers Ltd [2021] UKSC 32 at [47]-[49]; [2021] 3 WLR 598
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609
Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 at 178; [1946] 1 All ER 350
Hodgson v Amcor Ltd [2012] VSC 94; (2012) 264 FLR 1
Hoh & Ors v Frosthollow Pty Ltd & Ors [2014] VSC 77
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64
IceTV v Ross [2007] NSWSC 635
Izaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163
James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCA 311
JMB (NSW) Pty Ltd v West [2020] NSWSC 1380
John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995
Just Group Pty Ltd v Peck (2016) 264 IR 425; [2016] VSCA 334
Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564
Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449
Lablemakers Group Pty Ltd v LL Force Pty Ltd (No 2) [2012] FCA 512
Lansing Linde Ltd v Kerr [1991] 1 WLR 251
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
Manildra Laboratories v Campbell [2009] NSWSC 987
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749
McHugh v Australian Jockey Club Ltd (2014) 314 ALR 20
Medsara Pty Ltd v Sande [2005] NSWCA 40
Metcash Ltd v Jardim (No 3) (2010) 273 ALR 407; [2010] NSWSC 1096
Miles v Genesys Wealth Advisors Ltd (2009) 201 IR 1; [2009] NSWCA 25
News Life Media Pty Ltd v Janeke [2016] NSWSC 1835
Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535
Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; [2012] FCAFC 111
Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45
Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31
Pittmore Pty Ltd v Chan; Chan v Tan (2020) 104 NSWLR 62; [2020] NSWCA 344
R v Byrnes (1995) 183 CLR 501; [1995] HCA 1
Red Bull Australia Pty Ltd v Stacey [2011] NSWSC 1212
Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275
Scully (UK) Ltd v Lee [1998] IRLR 259
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11
Sidameno (No 456) Pty Ltd v Alexander [2011] NSWCA 418
Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47
Snowden v Australian Mortgage Assist Pty Ltd [2019] NSWSC 1799
Stacks Taree v Marshall [No.2] [2010] NSWSC 77
Steadfast IRS Pty Ltd v Latchmi Mesuria [2020] NSWSC 947
The Littlewoods Organisations Ltd v Harris [1978] 1 All ER 1026
Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 414; [2008] NSWSC 852
Two Lands Services Pty Ltd v Cave [2000] NSWSC 14
United Australia Ltd v Barclays Bank Limited [1941] AC 1
Veda Advantage (Australia) Pty Ltd v de Beer [2016] NSWSC 37
Victoria University of Technology v Wilson (2004) 60 IPR 392; [2004] VSC 33
WA Fork Truck Distributors Pty Ltd v Jones [2003] WASC 102
Weldon & Co v Harbinson [2000] NSWSC 272
Woolworths v Olson [2004] NSWCA 372
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
Category: Principal judgment
Parties: 2021/16210:
Employsure Pty Ltd (plaintiff)
David McMurchy (first defendant)
Elmo Software Ltd (second defendant)
[2]
2021/53385:
Employsure Pty Ltd (plaintiff)
Arumugam Kumaran (first defendant)
Elmo Software Ltd (second defendant)
Representation: Counsel:
P J Brereton SC, P Moorhouse, J Simpkins (for the plaintiff)
I M Neil SC, Ms P Lowton (for the defendants)
These proceedings involve alleged breaches by two former employees (Mr McMurchy and Mr Kumaran) of the Plaintiff, Employsure Pty Ltd, for actual and threatened breaches of contract.
They are the First Defendant in each proceeding. They both left the Plaintiff to take up employment with the Second Defendant, ELMO Software Ltd, which it is asserted is a competitor of the Plaintiff.
As against Mr McMurchy it is alleged that he also breached his contract and his fiduciary duty to the Plaintiff while still employed by commencing employment with the Second Defendant and taking steps to recruit Mr Kumaran.
It is asserted that the Second Defendant is liable as having induced Mr McMurchy to breach his contract with the Plaintiff and for knowingly assisting Mr McMurchy's breach of fiduciary duty.
The proceedings also involved claims to enforce post-employment restraints and for injunctive relief.
[5]
The Relevant Businesses
The Plaintiff is primarily a human resources and workplace health and safety service business operating throughout Australia and New Zealand.
It offers a product which involves the sale and support of a software product called 'BrightHR' and 'BrightSafe'.
The software was initially developed in the United Kingdom, and is licenced exclusively to the Plaintiff for sales in Australia and New Zealand by BrightHR Limited, a UK company that is also owned by Employsure's parent company (CB1/55 at [16], CB1/57 at [23]).
This software supports human resources and workplace health and safety and has been sold since October 2019. The particular software was developed to allow small to medium size enterprises with up to 50 employees to manage and automate their human resources function (CB 1/56 at [19]).
The Plaintiff seeks to sell Bright to all new customers who sign up for its product offerings, although subscribers may request not to include the Bright software (CB 1/58-59 at [28]). Those who request to remove it pay a reduced price (Confidential Transcript of Day Two at T.40/20).
As at the end of February 2021, the Plaintiff had 27,316 subscribers, with 10,311 of those having access to the Bright software as part of their subscription (CB 1/58 at [26]; CB 5/1568).
In addition to seeking to sell the Bright software products to all new customers that sign up to the Plaintiff's business, it also sells the Bright software to its pre-existing (pre-October 2019) customers (CB 1/194 at [7]-[8]).
On the other hand, the Second Defendant is a software provider. It describes itself as a "leading provider of cloud human resources, payroll and rostering time software in Australia and New Zealand" (CB 3/813).
In a media release in October 2020 the Second Defendant announced that it had acquired the "UK HR platform Breathe". It was described in the media release as a self-service HR platform which would provide the Second Defendant with entry into the small business market for organisations with less than 50 employees (CBB 3/741).
The Second Defendant launched the Breathe software in Australia during February 2021 (CB 1/155 at [38]; T.88/5-13). This process involved a "soft launch" date of 4 February (CB 1/155 at [38]), the launching of a new website on or around 11 February (CB 1/77 at [122]) and the active selling of Breathe since 21 February (T.68/35).
[6]
The McMurchy Proceedings
The McMurchy proceedings commenced on 19 January 2021.
On 21 January 2021, Mr McMurchy gave certain undertakings, including that until further order or until after 5 February 2021 (later extended to 8 February 2021) he would not perform any work or duties for the Second Defendant (CB 5/1621).
On 8 February 2021, Parker J granted interlocutory relief, making orders (CB 5/1623) the reasons for which are set out in Employsure Pty Ltd v McMurchy [2021] NSWSC 139. The orders included:
1. that until 14 March 2021 or further order Mr McMurchy be restrained from performing any work or duties for, or at the direction of the Second Defendant; and
2. adjourning the balance of Employsure's application for interlocutory relief to 4 March 2021.
These orders also record an undertaking given by Mr McMurchy not to use or disclose or allow to be used or disclosed Employsure's confidential information. Therefore, the Plaintiff does not seek any further relief against Mr McMurchy in relation to his duties of confidence.
The matter was listed on 15 March 2021 (with the Kumaran proceedings) for hearing the balance of the Plaintiff's application for interlocutory relief. On that date, after a further interlocutory hearing, Parker J made the following orders (CB 5/1630):
2 ORDERS that until 5pm on the final day of the trial or until further Order, the first defendant be restrained from performing any work or duties for, or at the direction of, the second defendant or Breathe Software Pty Ltd and from attending any work place under the control of the second defendant or Breathe Software Pty Ltd.
3 ORDERS that until 5pm on the final day of the trial or until further Order, the first defendant be restrained from attempting to entice away or solicit any employee of Employsure or any Related Body Corporate.
These orders remain in place. The Plaintiff has indicated that if the Court were to reserve judgment in this matter, it would seek an order extending the injunction until judgment is given. On 10 June 2021, I made those orders.
The Plaintiff also seeks final orders, as outlined in its draft of 9 June 2021, restraining Mr McMurchy up to and including 11 January 2022 from working for a business or prospective business in competition with the Plaintiff, including the Second Defendant (Order 6). It also seeks an order that up to and including 11 January 2022, Mr McMurchy be restrained from attempting to entice away or solicit any employee of the Plaintiff or any related body corporate (Order 7).
[7]
The Kumaran Proceedings
The Kumaran proceedings were commenced on 24 February 2021.
The matter was listed on 4 March 2021 for hearing of the Plaintiff's application for interlocutory relief but did not proceed on that day. Ultimately, the matter was listed on 15 March 2021, with the McMurchy proceedings, for hearing of the Plaintiff's application for interlocutory relief.
On 4 March 2021, Mr Kumaran gave undertakings not to use or disclose the Plaintiff's confidential information. Therefore, the Plaintiff does not seek any further relief in respect of his duties of confidence.
On 15 March 2021, Parker J made the following order (CB 5/1628):
2 ORDERS that until 5pm on the final day of the trial or until further Order, the first defendant be restrained from the time and date of these orders being entered on 15 March 2021 from performing any work or duties for, or at the direction of, the second defendant or Breathe Software Pty Ltd and from attending any work place under the control of the second defendant or Breathe Software Pty Ltd.
The order remained in place at the time of the hearing and, on application by the Plaintiff, on 10 June 2021 I extended this order until judgment is delivered in this matter.
The Plaintiff also seeks final orders, as outlined in its draft of 9 June 2021, restraining Mr Kumaran until 11 February 2022 from being engaged with any other business in competition with the Plaintiff, including the Second Defendant.
[8]
Some General Observations
Much of the basic factual material is not in dispute. Of course, Mr McMurchy's contact with Mr Kumaran at the relevant time is not only in dispute but the parties are unsurprisingly at odds as to what inferences should or not be drawn.
The status of Mr McMurchy's contract is logically the first issue to be addressed.
The next question concerns the extent to which by reason of his contractual or other duties he did or did not breach those duties and the consequences, if any, of those breaches. Inextricably bound up with those questions however is the extent to which it can be said that the Plaintiff and the Second Defendant are in competition one with the other.
[9]
Mr McMurchy and Mr Kumaran's employment with Employsure
Mr McMurchy commenced employment with the Plaintiff in January 2015, under the terms set out in a letter of offer dated 23 January 2015, which included a schedule of standard terms (the "2015 McMurchy Contract"). A copy of the 2015 McMurchy Contract signed by Mr McMurchy is at CB 3/553-559.
With effect from 1 April 2018, Mr McMurchy was promoted to the role of Outbound Sales Manager. It was in that context that in February 2018, Employsure and Mr McMurchy entered into a new employment agreement (the "2018 McMurchy Contract"). A copy of the 2018 McMurchy Contract, dated 20 February 2018 and signed by both parties, can be found at CB 3/566-578.
There is a dispute about Mr McMurchy's precise status following his 2018 promotion. However, it is asserted by the Plaintiff he held a senior position as a result of the promotion and was given confidential information as a result.
Mr McMurchy subsequently agreed to a total of five contract variation letters recording changes to his employment agreement. Three of the variation letters merely recorded a change to the person to whom Mr McMurchy reported (CB 3/584, CB 3/591 and CB 3/721). Another recorded a minor change to his job title (CB 3/709).
A more significant change occurred in June 2019, when Mr McMurchy moved into the new role of 'Manager, BrightHR', and at that time there were also changes to his salary and bonus arrangements (CB 3/592-594).
In June 2019, Mr McMurchy travelled to the United Kingdom in order to learn about and understand the BrightHR software and business (which was already operating in the UK) in advance of the BrightHR software being launched in Australia and New Zealand. Between June 2019 and October 2019 Mr McMurchy was setting up the systems and processes that were required for the October 2019 launch of BrightHR in Australia and New Zealand.
From the time Employsure's BrightHR software product was launched until the end of his employment with Employsure, Mr McMurchy held the position of 'Manager, BrightHR' (later renamed 'Manager, Bright' after the introduction of the BrightSafe software product). The purpose of his position was to "support and deliver the vision, strategy and plan for Employsure's BrightHR function" (CB 3/595 and CB 3/710).
Mr Kumaran commenced employment with Employsure on or around 27 February 2018, under the terms set out in a letter of offer dated 19 February 2018 that also included the terms set out in a "Schedule of Standard Terms" (the "Kumaran Contract"). A copy of the Kumaran Contract signed by Mr Kumaran is at CB 3/562-565E.
[10]
Mr McMurchy and Mr Kumaran's employment with the Second Defendant
On 16 November 2020, Mr McMurchy applied for a position with the Second Defendant (CB 3/754A). On 11 December 2020, he accepted a role with the Second Defendant in the position of 'Sales & Customer Success Director, Breathe". Employsure was unaware of these matters at the time.
On 14 December 2020, Mr McMurchy gave Employsure a purported letter of resignation (CB 3/783-784). The letter said that his last day of employment would be 11 January 2021, thus giving 4 weeks' notice of his proposed departure. The Plaintiff contends that was less than the 3 months' notice required by the 2018 McMurchy Contract, and as such that letter was not effective to terminate Mr McMurchy's employment contract.
On 15 and 16 December 2020, Mr McMurchy's manager informed him that he was required by his employment contract to give 3 months' notice (CB 3/789 and CB 3/792). Mr McMurchy's response was to confirm that his last day of employment would be 11 January 2021 (CB 3/801).
Mr McMurchy does not contend that he was told by Employsure that it would accept him giving 4 weeks' notice, or that he was told by Employsure that his purported notice was effective to mean that his employment would end on 11 January 2021.
There were subsequent discussions about attempting to have Mr McMurchy remain with Employsure, but no agreement was reached.
On 8 January 2021, the Plaintiff's lawyers, Kardos Scanlan, wrote to Mr McMurchy reminding him of his contractual obligations to Employsure, and stated that his purported notice of termination was not effective to bring his employment to an end and that he remained employed with Employsure. The letter also noted that the Second Defendant was a direct competitor with Employsure's Bright software, and sought undertakings to confirm that he would comply with his contractual obligations to Employsure (CB 3/913-942).
There was then correspondence between the parties' solicitors, which included the following exchange.
1. On 11 January 2021 Mills Oakley, acting for Mr McMurchy, wrote to Kardos Scanlan and said that Mr McMurchy did not regard himself as employed by Employsure, and referred to his "new employment with the Second Defendant Software Limited". That letter did not provide any undertakings by or on behalf of Mr McMurchy (CB 3/913-942).
2. On 12 January 2021 Kardos Scanlan wrote to Mills Oakley (CB 3/950-954). By that letter Employsure:
1. gave Mr McMurchy 3 months' notice of the termination of his employment, to bring his employment to an end on 12 April 2021; and
2. directed Mr McMurchy to not attend the Employsure office and not undertake any work other than as directed, but to remain available during business hours to respond to queries or perform duties as requested (as per cl 19.3 of the 2018 Employment Agreement).
[11]
The Relevant Documents
Below is a brief summary of some of the more important documents relied upon in the proceedings.
[12]
Variation Letter
First was the letter dated 22 March 2019 which varied the 2018 McMurchy Contract (CB 3/591). The letter states as follows:
Amendment to terms and conditions of employment
Your contract of employment dated 23 January 2015 (Employment Agreement) is being amended as follows:
Line Manager
you will report to the head of business sales in this role, unless notified otherwise.
All other terms and conditions of your employment remain unaltered and your Employment Agreement otherwise continues to apply, however, for the avoidance of doubt, in the event of any inconsistency between the terms stated above and your existing Employment Agreement, these terms will prevail.
Please confirm your agreement to this amendment by signing a copy of this letter and returning it to Talent. …
[13]
Mr McMurchy's Notice
Second was Mr McMurchy's purported notice of 14 December 2020 (CB 3/784) which stated:
Please accept this letter as formal notice of my resignation from my position as Manager, Bright at Employsure Pty Ltd. My last day of employment will be Monday, January 11th, 2021.
[14]
The 2015 McMurchy Contract
The post-employment clause (CB 3/554) in the 2015 McMurchy Contract provides that Mr McMurchy must not, after termination of employment:
engage or prepare to engage (directly or indirectly) in a business that competes with the [Employsure]".
The restraint is expressed to apply for 12 months, and throughout Australia.
[15]
The 2018 McMurchy Contract
The next document was the 2018 McMurchy Contract, in which several clauses were referenced.
Clause 5.1 (CB 3/569) included an obligation for Mr McMurchy to:
devote the whole of [his] time, attention and skill during normal business hours … to [his] duties for [Employsure] (cl.5.1(a))
Clause 16 (CB 3/571) expressly contemplated that the employee may receive confidential information and imposes obligations about what must and must not be done in respect of confidential information.
Clause 18.2 (CB 3/574-575) provided:
Without the prior written consent of [Employsure], the Employee must not, while employed by [Employsure], be engaged or interested in any other business or occupation (whether paid or unpaid) … that, in the reasonable opinion of [Employsure], may hinder or interfere with the performance of the Employee's duties.
Clause 19.1 (CB 2/573) provided that the agreement may be terminated in writing at any time by either party, and with the period of notice set out in item 9 of the Schedule. Item 9 (CB 3/578) provides that the period of notice is three months.
The post-employment restraint in the 2018 McMurchy Contract was outlined in cl.20 (CB 3/574) which provided that Mr McMurchy "agrees not to carry on or be engaged, concerned or interested, directly or indirectly", whether as an employee or otherwise:
… in any business or prospective business in competition with [Employsure] at the time of termination of employment.
The restraint is expressed to apply for up to 12 months, and throughout Australia
[16]
The Kumaran Contract
The Kumaran Contract included a term entitled "Restraint". The introductory paragraph to this clause states (at CB 3/563):
During your employment you may be associated with our Clients, Intermediaries, and Employees and you may also have access to our confidential information. By accepting this offer of employment you acknowledge that it is commercially important to us that you are restricted in the way you are entitled to deal with such person or entities and any use of confidential information…
It also includes the following provision (at CB 3/564):
… you will not … be directly or indirectly engaged, concerned or interested with any other person or bu siness that is wholly or partly in competition (or is preparing to be wholly or partly in competition) with the business carried out by [The Plaintiff] …
This clause is expressed to apply for up to 12 months, and throughout Australia.
[17]
Construction of Contracts
The principles governing the construction of commercial contracts were summarised recently by Gleeson J in De L'Isle v Knight [2021] NSWSC 809 as follows:
[74] …An objective approach is to be adopted in determining the rights and liabilities of parties to a contract. The contract is to be construed by what a reasonable businessperson would understand it to mean. That requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] and [78].
[75] Regard can be had to the surrounding circumstances objectively known to the parties: Codelfa at 352 (Mason J). However, care must be exercised in considering evidence of negotiations between the parties. Evidence of negotiations is inadmissible for the purpose of construction insofar as it is no more than evidence of what the individual parties were subjectively trying to do when they negotiated the language of their agreement. Negotiations may be considered only to the extent that they identify mutually known facts which form part of the background to the transaction: Codelfa at 354. As Heydon and Crennan JJ said in Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [98]:
… evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of "surrounding circumstances". (Citation omitted.)
See also the summary of Bathurst CJ (with whom Macfarlan and Meagher JJA agreed) in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [52].
[18]
Rectification at Common Law and in Equity
Rectification may be undertaken at law or in equity, both of which are discussed in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 ("Seymour Whyte") at [6] 322 to [19] 325.
Where a Court can discern the parties' intention from the factual and legal context, the Court can supply, omit or correct the words in the document to avoid absurdity or inconsistency, and in these cases, rectification is not required (Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 ("Fitzgerald v Masters") at 426 - 427 and 437; Seymour Whyte at [6]-[10]; see also James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCA 311 ("James Adam") at [20]).
The two conditions necessary for Court to correct contractual language to avoid absurdity or inconsistency are firstly, that the literal meaning of the contractual words is an absurdity or is inconsistent, and secondly, it is self-evident what the parties' objective intention was (Seymour Whyte at [8]-[10]; James Adam at [20]).
For equitable rectification to be available there must be an actual common intention of the parties which, through a common mistake, was not reflected in the document (Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [46], [103], [104]; Seymour Whyte at [12]).
[19]
Fiduciary obligations
A fiduciary, including an employee, agrees to act for or on behalf of, or in the interests of, another person in the exercise of a power or discretion that will affect the interests of that other person in a legal or practical sense (see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64 ("Hospital Products")).
An employee must not work for another employer if the other employment is inconsistent with the first employment (Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 at 178; [1946] 1 All ER 350 at 356) or "could conflict with" the first employment (Victoria University of Technology v Wilson (2004) 60 IPR 392; [2004] VSC 33 (Nettle J) at [14]).
An employee will be in breach of duties owed to their employer if they actively entice an employee to leave to come to a new enterprise. In Lablemakers Group Pty Ltd v LL Force Pty Ltd (No 2) [2012] FCA 512 ("Lablemakers") at [115] Tracey J said:
A conflict will […] arise if the employee seeks to persuade fellow employees to resign their employment and accept positions in the new business: see Warman International at 556, 566. To act in this way is to breach an employee's duty "not to improperly use his position to cause detriment to his employer": see WA Fork Truck Distributors at [67].
The manner of approaching employees and whether such approaches constitute a breach of contract or fiduciary duties, depends upon the manner in which the approach is made (WA Fork Truck Distributors Pty Ltd v Jones [2003] WASC 102 ("WA Fork Truck") at [61]). It can constitute a breach of fiduciary duties of good faith (WA Fork Truck at [67]).
[20]
Restraint of Trade
In Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45, the High Court stated (at [14]) that the question of whether there is a "restraint" is to be answered having regard to the practical working of the alleged restraint.
At common law, a restraint of trade is contrary to public policy and void (citing Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535 at 565 per Lord Macnaghten, cited in Agha v Devine Real Estate Concord Pty Ltd [2021] NSWCA 29 at [164]; see also Harcus Sinclair LLP and another v Your Lawyers Ltd [2021] UKSC 32 at [47]-[49]; [2021] 3 WLR 598). Under s.4(1) of the Restraints of Trade Act 1976 (NSW) ("Restraints Act"), however, a restraint is valid to the extent to which it is not against public policy even if not in severable terms (see also Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 ("Koops Martin") at [26]-[27] per Brereton J). The effect of the Restraints Act is to allow the restraint to be read down so as to be valid to the extent necessary only to capture the conduct of the offending party, if a restraint to that extent would have been valid (Steadfast IRS Pty Ltd v Latchmi Mesuria [2020] NSWSC 947 ("Steadfast") at [43] per Sackar J). Irrespective of whether an agreement is unreasonable as between the parties, if it is unreasonable in the public interest it will be void for that reason (Belflora Pty Ltd v Vinflora Pty Ltd [2021] NSWCA 178 ("Belflora") per Bathurst CJ at [33]; Brereton JA at [59] and Emmett AJA at [62]).
The burden of justifying the restraint's reasonableness lies on the party seeking to impose it (Adamson v New South Wales Rugby League Limited (1981) 27 FCR 535; [1991] FCA 8 at 554 per Hill J).
In Belflora, Brereton JA commented (at [46]) that:
[w]hether a restraint is reasonable having regard to the interests of the parties depends on two, albeit related, considerations: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest.
While the doctrine of restraint of trade applies to restrictions imposed during the currency of a contract, the pendency of the contract will usually be sufficient justification of their reasonableness (Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 414; [2008] NSWSC 852 ("Tullett Prebon") at [40], [45]; cf Metcash Ltd v Jardim (No 3) (2010) 273 ALR 407; [2010] NSWSC 1096 ("Metcash") at [43]).
[21]
What does "in competition" mean?
The words "in competition with" one would expect commonly arises in contracts of this sort, however, the particular combination of words has to be viewed in the context of the particular contract and its context.
In News Life Media Pty Ltd v Janeke [2016] NSWSC 1835 ("News Life Media"), the defendant's former employer sought to enforce a restraint of trade clause in the defendant's contract. One of the questions in the case involved a determination of what was meant by the phrase "in competition with" in the contract. The Court noted (at [30]) that the construction to be given to this phrase must depend on the function the relevant clause was intended to perform in the context of the overall contract. What was sought to be prevented was the exploitation of confidential information by commercial rivals to the plaintiff, indicating the focus was on competition in a commercial context or sense (at [39]). Therefore, McDougall J held (at [39) that:
… in assessing the question of competition, it is necessary to look at the extent to which there is competition in some particular market. In that context, concepts of substitutability may well be significant. There was no evidence directed specifically to competition in that sense, as opposed to competition in the sense of commercial rivalry.
In News Life Media the words "in competition with" were combined with the phrase "parts of the business". This combination meant that the clause operated to prevent the defendant from engaging in work in competition with the part of the business of the plaintiff for which she had worked in the relevant period (at [43]).
In Veda Advantage (Australia) Pty Ltd v de Beer [2016] NSWSC 37 ("Veda Advantage"), Black J (at [28]) held that the ordinary meaning of the word "competitor":
…should be understood in the sense indicated in Sea Containers Ltd v ICT Pty Ltd (Supreme Court (NSW), O'Keefe CJ Comm D, 27 October 1994, unrep) where O'Keefe CJ Comm D, observed that:
"[i]n ordinary use the verb 'to compete' [involves] the notion of seeking or striving for something in opposition to others and the word competitor conveys the notion of a rival, including a rival in trade."
I accept that a "competitor", in ordinary usage, may also include an entity that sells similar products to a second entity so as to compete with it seriously (JD Heydon, The Restraint of Trade Doctrine, 3rd ed 2008, LexisNexis Butterworths at 305) or which is operating or about to operate a business in competition with a second entity (ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 661) or which might pose a real commercial threat to the first entity (Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111; (2012) 205 FCR 187 at [32], [44]) or where there is 'substitution between the products and sources of supply' of the two entities (John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 at [18]).
[22]
Tort of inducing breach of contract
In Flightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323 ("Flightvision"), the Court (Sheller, Stein and Giles JJA) summarised the test for the tort of inducing breach of contract at 509 [159] to 512 [171]). Their Honours stated the position as follows (at 512 [171]):
…The plaintiff must prove that the defendant intentionally procured the breach. The requirement that the defendant have sufficient knowledge of the contract is a requirement that he have sufficient knowledge to ground an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of the necessary intention.
See also Pittmore Pty Ltd v Chan; Chan v Tan (2020) 104 NSWLR 62; [2020] NSWCA 344 at 99 [176].
The concepts of "knowledge" and "intention" are intertwined. As Lindgren J noted in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26; [1995] FCA 481 (at 37), "a person's 'knowledge' that what he is inducing will constitute a breach of contract and his 'intention' to induce a breach of contract by what he is doing refer to one and the same thing".
Their Honours in Flightvision also commented on the issue of loss and causation at 534 [280] to 535 [281], finding that:
[280] There is a loss, and where the defendant induced the breach of contract the finding of inducement means that it was caused by the defendant inducing the breach of contract. The loss flowing from the breach of contract was caused by the inducing even if a contributing cause of the loss was the contract breaker's disinclination to perform the contract.
[281] our view, any question is one of causation. A finding of inducing breach of contract carries with it a finding that the defendant's actions caused the breach of contract and the loss which flowed. It does not matter that the contract breaker yields readily or before the inducement was willing to break the contract: Woolley v Dunford (1972) 3 SASR 243 at 290-291; Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots [1991] 1 VR 637 at 659. But it may be possible for the defendant to establish, according to the commonsense notion of causation in March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, that inducing the breach of contract was not the cause of the loss because the loss would have been suffered in any event.
[23]
Submissions of the Parties in the McMurchy Proceedings
As is obvious from the submissions recorded below, there were numerous factual and legal disputes in what is a complex case. It is important therefore that I record in my view comprehensively the respective factual and legal submissions.
[24]
Plaintiff's Submissions
The Plaintiff's primary case in relation to Mr McMurchy is that his purported resignation on 14 December 2020 was not effective to terminate his employment contract, and that the termination of his employment contract occurred by means of the three months' notice given by the Plaintiff on 12 January 2021, which took effect on 12 April 2021.
[25]
The 2018 McMurchy Contract applied
The first issue identified by the Plaintiff was whether at the time Mr McMurchy gave his purported notice of termination on 14 December 2020, his employment was governed by the 2018 McMurchy Contract, or as Mr McMurchy argues, the 2015 McMurchy Contract. This issue then determines whether Mr McMurchy was required to give either 3 months' or 4 weeks' notice of termination.
It is not in dispute that Mr McMurchy and the Plaintiff entered into the 2018 McMurchy Contract, which took effect from 1 April 2018. The Plaintiff therefore submits that there can be doubt that upon entry to the 2018 Contract, the 2015 McMurchy Contract was wholly replaced. The 2018 McMurchy Contract expressly states that it supersedes the 2015 McMurchy Contract (cl.2.3 at CB 3/569) and that any previous agreements cease to have effect.
The first amendment to the 2018 McMurchy Contract occurred on or about 22 November 2018 (CB 3/584), when Mr McMurchy signed an agreement letter dated 15 November 2018. By this amendment, the 2018 McMurchy Contract was varied to change Mr McMurchy's line of report and is not relied on by Mr McMurchy as having the effect of reinstating the 2015 McMurchy Contract.
The critical amendment letter is that dated 22 March 2019 as extracted above at [64] (CB 3/591). This is the only "variation" that Mr McMurchy relies on in his evidence (McMurchy affidavit, 3 April 2021 at [66]-[69]).
The Plaintiff argued that the only consequence of this amendment is that the 2018 McMurchy Contract, as amended by the 15 November 2018 letter, was further amended to change Mr McMurchy's line of report.
The Plaintiff submitted that if the parties had intended to bring the 2018 McMurchy Contract to an end and reinstate the 2015 McMurchy contract, very different words would have been required. There is obvious absurdity in referring "Your contract of employment dated 23 January 2015….is being amended as follows..." at a time when the 2015 Employment Contract had ceased to operate and been replaced by the 2018 McMurchy contract.
The Plaintiff argued that the language of the 22 March 2019 letter clearly indicates the parties' objective intention was that the variation letters were effecting a variation to the existing employment agreement. The letter is headed "Amendment to terms and conditions of employment" and refers in multiple places to being an "amendment". It also states that "all other terms and conditions of your employment remain unaltered and your Employment Agreement otherwise continues to apply…" (CB 3/591; CB 3/592; CB 3/709; CB 3/721). The variation letter also refers to the "existing Employment Agreement" as applying other than where inconsistent with the variation.
[26]
The 2018 McMurchy Contract continued until 12 April 2021
The second issue the Plaintiff considered was whether, assuming it was correct that the 2018 McMurchy Contract applied in December 2020, the notice given by Mr McMurchy on 14 December 2020 was effective notice so as to bring his contract to an end on 14 March 2021 (after 3 months).
The Plaintiff contended that Mr McMurchy's purported notice was not effective to terminate the contract (CB 3/784, extracted above at [65]).
Mr McMurchy gave 4 weeks' notice in circumstances where cl.19.1 required 3 months.
In response to his manager telling him twice on 15 December 2020 that he was required to give 3 months' notice (CB 3/789 and 792), Mr McMurchy confirmed on 17 December 2020 that his "intended last day of employment still stands as January 11th 2021" (CB 3/801).
The Plaintiff did not agree to a shorter period of notice than the required 3 months. It did not meet the requirement of cl.19.1 of 3 months' notice and did not operate to terminate his employment contract.
The defendants adopt as correct Parker J's tentative reasoning on the requirement of notice in Employsure v McMurchy [2021] NSWSC 139 ("Employsure v McMurchy") at [58]-[61]. At [58], his Honour made reference to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 ("Mannai") at 768 to assert that while notice must comply with the relevant terms of the contract, beyond that the only requirement is that the notice must convey with a sufficient degree of clarity that the contractual power is being exercised.
The Plaintiff argued that the facts of Mannai were very different from those of the present proceedings. Mannai concerned notice given by a tenant to a landlord. The relevant contractual clause allowed termination by not less than 6 months' notice in writing to expire on the third anniversary of the commencement of the lease. The tenant gave 6 months' notice in writing, expressly referring to the clause of the contract pursuant to which such notice was able to be given, but erred in stating that the lease would end on 12 January 1995, whereas the third anniversary of the commencement of the lease was 13 January 1995. The majority of the House of Lords held, considering the matter objectively, that it would have been obvious to a reasonable recipient that the tenant wished to exercise the contractual power to end the lease on the third anniversary of the commencement of the lease (at 768A, 773C, 774H-775A, 783A). There was no respect in which the tenant had not complied with the requirements of the clause allowing it to give notice. The tenant referred in its notice to the correct clause in the lease and it gave the requisite notice of not less than 6 months, but merely made an error in stating that the lease would determine on 12 January 1995, when the correct date was 13 January 1995. By way of contrast, Mr McMurchy did not give the required period of notice (3 months).
[27]
Restraints of trade during an employment contract
The next issue was whether Mr McMurchy was in breach of the 2018 McMurchy Contract in taking up his position with the Second Defendant in the period up to the termination of his employment contract with the Plaintiff. This assumes that the 2018 McMurchy Contract governed his employment and did not terminate on 11 January, and that from 12 January 2021 (and until 12 April 2021, or alternatively 14 March 2021), Mr McMurchy remained employed by the Plaintiff.
The Plaintiff submitted that when Mr McMurchy commenced employment with the Second Defendant on 19 January 2021 he did so in breach of his contract with the Plaintiff.
Clause 18.2 of the 2018 McMurchy Contract prevented Mr McMurchy from working for another business while he remained employed and during his notice period (extracted above at [71] of the "background facts"). Clause 5.1, which sets out Mr McMurchy's principal duties, is also relevant (extracted above at [69]).
The fact that Mr McMurchy was still employed and entitled to be paid during his contractual notice period goes to the reasonableness of the restraint while the contract is on foot: Metcash at [47], [48].
The Plaintiff cited BGC Partners (Australia) Pty Limited v Hickey (2016) 259 IR 318; [2016] NSWSC 90 ("BGC Partners"), where the Court held that there was nothing unreasonable about a restraint to protect legitimate interests for so long as the employee was bound by the employment contract (at [97]), although the Court went on, as a matter of discretion, to limit an injunction requiring compliance with the employee's contractual obligations not to work for any other business to a period of 9 months after the employee actually ceased working. The Plaintiff argued that similarly it is reasonable for it to protect its legitimate interests in its confidential information, and its interest in having Mr McMurchy available to work or respond to queries as directed.
Therefore, the Plaintiff was entitled to direct Mr McMurchy to refrain from taking up employment with the Second Defendant at the time that he did, meaning that he was in breach of cl.5.19(a) and cl.18.2 of his employment contract.
The Plaintiff addressed each of Mr McMurchy's counter-arguments on this issue in turn, beginning by restating its position that the 2018 McMurchy Contract is the relevant one.
[28]
Breach of fidelity and fiduciary duty
The Plaintiff submitted that by commencing employment with the Second Defendant while still employed and in his notice period, Mr McMurchy also acted in breach of his express and implied contractual duty of fidelity, and the 'no conflict' aspect of his fiduciary obligations to the Plaintiff.
The 2018 McMurchy Contract contained express contractual obligations to:
1. "faithfully and diligently perform the duties and exercise the powers entrusted to [him] from time to time" (cl.5.1(b)); and
2. "promote the interests and prosperity" of the Plaintiff (cl.5.1(c)).
The Plaintiff argued there was, owing to the nature of the employment contract, an implied obligation of fidelity and good faith (as per Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66; [1933] HCA 8 at 81-82; Concut Pty Ltd v Worrell (2000) 75 ALJR 312; [2000] HCA 64 at [57]). Additionally, as a managerial employee, Mr McMurchy owed fiduciary obligations to the Plaintiff (Hospital Products at 68 (Gibbs CJ) and 96-97 (Mason J). Mr McMurchy owed fiduciary duties as he had agreed to act for or in the interests of Employsure in the exercise of powers or discretions relating to his employment (Hospital Products at 96-97; Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179 at [55], [167]; Hodgson v Amcor Ltd [2012] VSC 94; (2012) 264 FLR 1 ("Hodgson") at [1359]).
Mr McMurcy was under a duty not to put himself in a position where his interests and duties conflicted (Hodgson at [1363]). His "no conflict" obligations to the Plaintiff required him to avoid situations where there was or could be a conflict, or a real or substantial possibility of conflict, between his personal interests and the Plaintiff's (Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at 199). He could not place himself in a position where he owed conflicting duties (R v Byrnes (1995) 183 CLR 501; [1995] HCA 1 at 516).
Mr McMurchy commenced with the Second Defendant on 19 January 2021, while still employed by the Plaintiff, notwithstanding he had been informed in writing on 8 January 2021 that the Plaintiff considered the Second Defendant a direct competitor (CB 3/913 at 914) and on 12 January 2021 that the Second Defendant was a competitor and he should treat himself as an employee of the Plaintiff until 12 April 2021 (CB 3/950-952).
[29]
The post-employment restraints - the Second Defendant is relevantly in competition with Employsure
The Plaintiff's primary case is that Mr McMurchy's employment contract terminated on 12 April 2021, and from that date the post-employment restraints in cl.20 of the 2018 McMurchy Contract applied. On its alternative case, the contract terminated on 14 March 2021, and from that date cl.20 of the 2018 contract applied. On its further case, the contract terminated on 11 January 2021, and from that date the post-employment restraints in the 2015 McMurchy Contract applied.
The relevant clauses are cl.20 of the 2018 McMurchy Contract (CB 3/574, extracted above at [73]) and the restraint clause of the 2015 McMurchy Contract (CB 3/554). Both these clauses are expressed to apply for up to 12 months and throughout Australia.
The issue for determination in the Plaintiff's primary case is therefore whether the Second Defendant is a business or prospective business in competition with Employsure as at 12 April 2021, within the meaning of cl.20.1(b) of the 2018 McMurchy Contract. On the alternative case the same question arises but in relation to 14 March 2021. If the 2015 McMurchy Contract applied, the issue is whether the Second Defendant is a business that competes with Employsure, within the meaning of that contract.
In oral submissions, the Plaintiff addressed the question of the construction of the phrase "prospective business" in cl.20.1(b), arguing this would include the prospect of competition between the company and some other entity and that there was competition at the date of termination (Confidential Transcript of Day Six at T.16/3-10). The question to ask is whether there is competition between these two enterprises at the relevant time, being the date of termination, or prospectively (Confidential Transcript of Day Six at T.18/11-14).
Having regard to the ordinary rules of construction, the question becomes what a reasonable person in the position of the parties would have understood 'in competition' or 'competes' to mean, including having regard to the commercial purpose or objectives to be secured by the contract (Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640; [2014] HCA 7 at [35]). Such a reasonable person would not have understood 'in competition' or 'competes' to mean that a competitor or prospective competitor must compete with the whole of the Plaintiff's business for the restraint to be enlivened, as that would not be a commercially sensible purpose. Rather, a commercially sensible purpose would be reflected by a construction that provided that the restraint was enlivened if there is competition with some segment of the economic activities undertaken by the Plaintiff.
[30]
The post-employment non-competition restraint is reasonable
The terms of the 2018 McMurchy Contract make it clear that the parties contemplated at the time of entering into that Contract that Mr McMurchy would have access to an array of Employsure's confidential or proprietary information of the kind described in the definition of Confidential Information (see cl.16.2, CB 3/571).
In oral submissions (at T.255/21-T.256/4), the Plaintiff argued that Mr McMurchy's reliance on Lansing Linde Ltd v Kerr [1991] 1 WLR 251 ("Lansing") at 260 to justify a restraint against the misuse of confidential information only where there is a notion of real significant harm to the covenantee is inconsistent with what Lord Justice Sawton had observed in the case. Furthermore (at T.256/6-29), that the decision of Edelman J in Emeco demonstrates that much less need be demonstrated by an employer to justify a restraint against the misuse of confidential information than Mr McMurchy argued.
That Mr McMurchy would have access to the Plaintiff's confidential information was to be expected at the time of entry into the 2018 McMurchy Contract for several reasons. He was being promoted into a management role, the nature of his position as described in the Position Description he signed would lend itself to such a conclusion (CB 3/579), there was a high number of staff reporting to him, he anticipated he would be privy to the Plaintiff's strategic vision, and the Contract expressly contemplated him being employed in other capacities of similar status (cl.3.1, CB 3/569).
Facts occurring after the restraint's inception also demonstrate the circumstances at the relevant date (McHugh v Australian Jockey Club Ltd (2014) 314 ALR 20 at [4(h)]). Once Mr McMurchy began working as Outbound Sales Manager under the 2018 McMurchy Contract, he started attending the Plaintiff's monthly senior management team meetings (T.111/47) and receiving the associated monthly senior management reports (T.112/50) which include information falling within the definition of Confidential Information in the 2018 Contract. Mr McMurchy accepted in cross-examination that this information was "highly confidential" (T.114/10-T.115/5). The fact that he was to become privy to some of Employsure's highly confidential information is sufficient to justify the restraint.
The Plaintiff submitted that given the growth rate of its business and Mr McMurchy's promotion, it is reasonable for the parties to have contemplated when entering into the 2018 McMurchy Contract that Mr McMurchy may be further promoted as an ordinary incident of his employment, including in connection with an expansion of the business as in fact occurred when he was subsequently given the role of Manager, Bright HR in June 2019. A restraint entered into in such circumstances can reasonably protect confidential information that Mr McMurchy would or may have access to as a result of such promotion or expansion.
[31]
Period for which the restraints should be enforced
The Plaintiff seeks to enforce the restraint period of 12 months provided for in the written agreements, commencing after Mr McMurchy ceased working, that is until 12 January 2022.
The period for which a restraint supported by a need to protect an employer's confidential information will be valid depends on the time for which the employer's information will remain current and of commercial advantage (Cactus at [36]). As at 2018, the Plaintiff was a fast-growing and innovative organisation challenging traditional HR providers. In such an organisation it may be expected there would be a great deal of sensitive commercial information that would remain current for over 12 months, especially bearing in mind Mr McMurchy's role was to support and deliver the business's plan and strategy.
The Plaintiff recognised that alternatively the Court would be entitled to read down the restraint (as per s.4(1) of the Restraints Act) to a lesser period still reflective of the confidential information.
In these circumstances, the Plaintiff argued it would be appropriate for the Court to grant an injunction to restrain Mr McMurchy from soliciting other Employsure employees.
[32]
Mr McMurchy breached his contract and equitable duties to the Plaintiff by inducing or encouraging Mr Kumaran to leave the Plaintiff
The Plaintiff submitted that at or around the time or subsequently after Mr McMurchy accepted his employment contract with the Second Defendant and gave his notice of resignation in December 2020, while still employed by the Plaintiff, he engaged in conduct that involved encouraging and inducing Mr Kumaran to leave his employment with the Plaintiff to take up employment with the Second Defendant. This was in breach of his duties to the Plaintiff (see, e.g., Lablemakers at [115]).
On 14 December 2020, Mr McMurchy offered to provide the Second Defendant with the names of potential sales candidates to Mr Sheevers, Sales Enablement Leader at the Second Defendant (CB 3/785). Later that day he provided Mr Kumaran and others' names (CB 3/793). It was submitted that messages and those following (at CB 3/793) evidence there was a subsequent telephone conversation between Mr Sheevers and Mr McMurchy. A message from Mr McMurchy the following day indicated that the named individuals were "looking out for your message when you're ready" and "very keen on the role and opportunity" (CB 3/794), demonstrating that Mr McMurchy had approached each of them in relation to a potential role at the Second Defendant.
The Plaintiff submitted that the messages indicated Mr McMurchy was eager to assist with their recruitment, and his offer of assistance was taken up by Mr Sheevers the following day, asking if Mr McMurchy would join a conversation with one of the proffered candidates, to which Mr McMurchy agreed (CB 3/794).
The Plaintiff submitted that Mr McMurchy's conduct in relation to Mr Kumaran involved a breach of Mr McMurchy's contractual obligations of fidelity and good faith towards the Plaintiff and his fiduciary duty to the Plaintiff. This would justify the declaration sought by the Plaintiff in respect of the breach. That behaviour includes Mr McMurchy's evidence that he called Mr Kumaran and told him that he was leaving Employsure to join the Second Defendant; he said there will be positions available that Mr Kumaran would be very well suited for and asked if he would like to be put in touch with Mr Shevers (T.101/42-45).
Mr McMurchy cited Hodgson at [1517]-[1518] as authority for the proposition that no breach of contract or fiduciary duty arises where one employee aids another employee to find new employment, including by facilitating contact with prospective new employers, in circumstances where the second employee has independently made a decision to leave his employment. The Plaintiff noted that in Hodgson, Vickery J was not satisfied on the evidence that the relevant employees had been enticed to work at another business (at [1516]) and posed the proposition referred to by Mr McMurchy as being "in the usual case" (at [1517]). Therefore this was not intended as a principle of general application, and in any event the Court would not accept that Mr Kumaran independently made a decision to leave his employment with the Plaintiff.
[33]
How much notice was Mr McMurchy contractually required to give?
Mr McMurchy began by addressing the issue of which employment contract governed his employment on 14 December 2020. His contention was that this turned on the objective meaning of the contract variations, which was explicit and intractable. He argued that the variations mean what they say: internally, and between themselves, they consistently state that Mr McMurchy's contract of employment was the 2015 McMurchy Contract. The variations operate according to their terms.
The second issue raised by Mr McMurchy in relation to the amount of notice required was, if his case was accepted and the 2015 McMurchy Contract was the relevant agreement, whether the contract variations can and should be rectified. Mr McMurchy argued that the conditions for rectification are not satisfied; Employsure mistakenly referred to the 2015 Employment Agreement in the Contract Variations, then that mistake was unilateral (see, e.g., Medsara Pty Ltd v Sande [2005] NSWCA 40 at [4]). Mr McMurchy was entitled to act on the belief that his employer knew what it was doing when creating an instrument of employment and intended to achieve the result articulated in that document. He could not have expected a "mistake" of this kind on five separate occasions.
Therefore, the 2015 McMurchy Contract applied and 28 days' notice was required (cl. 9, CB 1/111; cl.10, CB 3/558).
[34]
Was the notice given by Mr McMurchy effective to terminate his employment on 15 March 2021?
Mr McMurchy submitted that if his employment as at 14 December 2020 was relevantly governed by the 2015 McMurchy Contract, then the notice he gave that day was effective to terminate that contract and his employment on 11 January 2021. Therefore, subject to the operation of any valid post-termination restraint in his contract with the Plaintiff, he had ceased to be bound by any relevant express or implied contractual or statutory obligations to the Plaintiff by the time he began his employment with the Second Defendant on 19 January 2021.
Mr McMurchy accepted that if, as the Plaintiff contends, it was the 2018 McMurchy Contract that applied, then the notice he gave on 14 December 2020 would be ineffective to terminate the contract on 11 January 2020. In that event, Mr McMurchy argued that the notice he gave was effective, without more, to terminate the contract three months later, on 14 March 2021, adopting the reasoning in Employsure v McMurchy at [58]-[60].
[35]
Mr McMurchy's roles at the Plaintiff
Mr McMurchy stressed that his role as Manager BrightHR did not involve any selling, rather he was part of the service function of the business. He stated that his role focused on managing a team of up to 13 staff engaged in supporting existing customers (CB 1/118 at [46]-[47]). With the exception of a handful of pre-October 2019 subscribers who added BrightHR to an existing subscription, all of the customers with whom he dealt already had active subscriptions that included BrightHR (CB 1/115 at [34]). The work of Mr McMurchy's team was to train existing customers of the Plaintiff who had subscribed to BrightHR in the use of the software (CB 1/115 at [34]). He also developed targets for training new subscribers, and performance indicators measuring client satisfaction with the training and support services (CB 1/118 at [46]).
Mr McMurchy alleged that the Plaintiff was attempting to exaggerate his seniority. He was a middle-ranking employee and never the sole head of the BrightHR support programme, being assisted by Ms Shaw.
[36]
No liability under cll.5.1(a), 5.1(c) or 18.2 of the 2018 McMurchy Contract
Mr McMurchy contended primarily that his contract was effectively terminated with the Plaintiff before his commencement with the Second Defendant and therefore there was no breach of contract or fiduciary duties. If the Court finds that his employment with the Plaintiff was relevant governed by the 2018 McMurchy Contract and that it remained on foot until 12 April 2021, then he made the following submissions.
Clauses 5.1(a), 5.1(c) and 18.2 of the 2018 McMurchy Contract (which the Plaintiff relies upon) are restrictive covenants to which the restraint of trade doctrine applies (Tullett Prebon at [54]-[66], and BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115 at [145]). They should be read together with cl.19.1 (CB 3/573) which required three months' notice and cl.19.3 (CB 3/573) which expressly authorised the Plaintiff to put Mr McMurchy on gardening leave, and which formed the basis for the Plaintiff putting Mr McMurchy on gardening leave for three months.
Mr McMurchy argued that the Plaintiff made no attempt to justify such restraint, and that the only purpose of such a regime was to protect the Plaintiff from competition by the complete "sterilisation" of his working capacity for three months. Moreover, while on gardening leave he was denied the opportunity to earn the discretionary bonus that could amount to 9% of his salary. Therefore cll. 5.1(a), 5.1(c) and 18.2 are unreasonable, invalid and unenforceable.
Finally, and in the alternative, Mr McMurchy argued that the Plaintiff accepted his repudiation of the 2018 McMurchy Contract when it directed him to return all of its property, having regard to cl.19.8 of the contract which is engaged "[o]n termination of this Agreement…" (CB 3/574). Acceptance brought the contract and the named clauses to an end.
[37]
No liability under the "Fidelity Term"
The Plaintiff's claim that by commencing with the Second Defendant, Mr McMurchy was in breach of an implied contractual duty of fidelity refers to an obligation of honesty. Mr McMurchy submitted that there was no evidence he acted dishonestly. He did not tell the Plaintiff he was going to take up a position with the Second Defendant but he had no legal duty to do so (Weldon & Co v Harbinson [2000] NSWSC 272 at [71]).
The premise of the Plaintiff's claim was that Mr McMurchy's employment with the Second Defendant involved competition with the Plaintiff. Mr McMurchy's primary response to this is the submission that his employment with the Second Defendant did not involve competition with the Plaintiff (addressed below).
The starting point of Mr McMurchy's secondary, and alternative, submission is that the implied duty of fidelity does not import unqualified obligations on employees to not engage in any activity in competition with their employer's business, or to not assist any business in competition with that of the employer. First, Mr McMurchy's conduct in accepting employment with the Second Defendant is, or is analogous to the accepted preparatory step of an employee setting up their own business that will compete with their current employer when they leave (Manildra Laboratories v Campbell [2009] NSWSC 987 at [81]-[83]). Second, employees may undertake secondary employment with a competitor, provided that it does not 'inevitably result in damage' to their primary employer (Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at 303). There is no direct evidence that Mr McMurchy commencing employment with the Second Defendant did, or would inevitably, result in damage to the Plaintiff, and no basis on which to make such an inference.
The Plaintiff's claim also refers to the diversion of opportunities away from it, however, Mr McMurchy contended there was no logical connection between his commencing with the Second Defendant and this allegation, and no evidence of any opportunity being diverted.
[38]
No breach of fiduciary duties
Mr McMurchy argued that the Plaintiff's attempt to invoke his fiduciary obligations is erroneous.
First, fiduciary duties do not have prescriptive obligations of the kind alleged (Snowden v Australian Mortgage Assist Pty Ltd [2019] NSWSC 1799 at [122]).
Second, an obligation to not act against the interests of the Plaintiff was said to exceed to the limits of any recognised fiduciary duty (Hoh & Ors v Frosthollow Pty Ltd & Ors [2014] VSC 77 at [61], [65]) and there is nothing about the relationship or circumstances of the parties that would justify such an extension of Mr McMurchy's duties.
Mr McMurchy recognised that it may be that, subject to the circumstances of a particular case, an employee will breach the recognised no-conflict and no-profit fiduciary duties by soliciting, during the period of the employment, the customers of the employer and attempting to have them become customers of a competitive business. However, this does not require an extension of the scope and content of the employee's fiduciary duties beyond the recognised no-conflict and no-profit fiduciary duties to include the separate and independent obligation alleged by the Plaintiff.
[39]
No loss suffered
Mr McMurchy submitted that even if it was found that he was bound by a contractual or fiduciary duty that precluded him from accepting or commencing with the Second Defendant, there is no evidence that the Plaintiff suffered any loss or damage as a consequence of breach.
[40]
Is Mr McMurchy liable for "encouraging and inducing" Mr Kumaran to take up employment with the Second Defendant?
Mr McMurchy submitted that the salient evidence in relation to this issue is that Mr Kumaran was entitled to lawfully terminate his employment with the Plaintiff with notice (cl.11.2, CB 3/565C) and was weary of his job with the Plaintiff (CB 1/96 at [22]) and had begun looking for employment elsewhere after being rejected for an internal position (CB 1/96 at [24]; CB 1/106 at [78]).
Mr Kumaran's evidence also outlined that Mr Kumaran had telephoned him and after airing his frustration, Mr McMurchy told him about an opportunity at the Second Defendant and that someone else would contact him (T.228/24-T.229/09). This was consistent with Mr McMurchy's evidence (T.100/41-T.102/06; T.139/30-T.140/17). Mr McMurchy then gave Mr Kumaran's name to Mr Shever (CB 3/785; CB 3/783) and Mr Kumaran then had a series of interviews. When Mr Kumaran resigned from the Plaintiff he did so lawfully.
It was submitted that based on this evidence it should be found that Mr Kumaran made an independent decision to leave his employment with the Plaintiff. Anything Mr McMurchy said or did was on the premise that Mr Kumaran had told him he had made such a decision. Mr McMurchy facilitated communication between the Second Defendant and Mr Kumaran but did not influence Mr Kumaran's decision to resign. Therefore he did not "encourage and induce" Mr Kumaran to take up employment with the Second Defendant.
In the alternative, Mr McMurchy was entitled, while employed by the Plaintiff, to discuss and pursue employment opportunities with other potential employees, including, if it be relevant, with competitors of the Plaintiff (Hodgson at [1512]-[1513]). No breach of an implied contractual duty of fidelity or fiduciary duty arises where one employee aids another employee to find new employment, including by facilitating contact with prospective new employers, in circumstances where the second employee has independently made a decision to leave his current employment (Hodgson at [1517]-[1518]) Especially where the second employee is lawfully entitled to leave their employment with notice. The general language of cl.2.2 of the Standard Terms annexed to the 2015 McMurchy Contract, and cll.5.1(b) and (c) of the 2018 McMurchy Contract should not be construed as having wider and tyrannous operation.
[41]
Mr McMurchy's equitable obligation of confidence
Mr McMurchy did not take issue with the fact that he has an equitable obligation to the effect alleged in the Plaintiff's Statement of Claim, but says that the evidence does not disclose any basis to think he has or might not comply with that obligation.
[42]
Is the Second Defendant's business "in competition with" Employsure?
Mr McMurchy argued that the first task in answering this question is to ascertain the proper construction of cl.20.1(b) of the 2018 McMurchy Contract, according to the principles in Just Group at [38] and Two Lands Services at [62] (3) and [65].
The critical question of construction concerns the meaning of the expression "any business…in competition with" the Plaintiff or a related corporation, as that expression is used in cl.20.1(b).
Mr McMurchy submitted that to the extent that the definitions of "competition" as proffered by Mr Plavsic and Dr Coker, and Black J in Veda Advantage at [28] differ, those differences are not material to the construction of cl.20.1(b). The essence of the concept should be taken for the purposes of clause 20.1(b) to be a rivalry in the trade between two 'product offerings' that are sufficiently similar to appeal to the same consumers, in the sense - as Mr Plavsic put it - that "the two product offerings are similar and would be viewed as substitutes by customers" (Cb 2/214 at [6.2]). For this purpose, "similar" does not mean "identical"; it is accepted that there is a "continuum of similarity" (T.151/49-50).
Mr McMurchy argued that the businesses of the Plaintiff and the Second Defendant are materially different and have dissimilar operations. The Plaintiff's business is to provide consultancy and advisory services in human resources and workplace health and safety (CB 1/54 at [9], [11]). Its services include consultancy, reviewing documents, training staff and managing disciplinary situations, among others, and offers these by way of subscription (CB 1/54 at [11]). By contrast, the Second Defendant sells human resources software (CB 1/149 at [3], [5]) with functions including recruitment, performance, payroll, leave and rostering (CB 1/149 at [5]). The Second Defendant does not provide any of the services that the Plaintiff provides, including consulting or advice (CB 1/152-153 at [16], [18]).
Mr McMurchy rejected the Plaintiff's contention that cl.20.1(b) applies "if there is competition in some segment of the economic activities undertaken by [the Plaintiff]". He argued that this contention misreads cl.20.1(a) which carefully and deliberately focuses on competition between businesses not products.
Mr McMurchy's first submission was that, on its proper construction, cl.20.1(b) is not engaged in this case, because there is no competition between the Second Defendant and the Plaintiff at the level of their businesses. They are not rivals in trade because, using the language of Two Lands Services, their businesses operate in a materially dissimilar manner, and the products they offer are not similar nor calculated to appeal to the same consumers.
[43]
Is the restraint in cl.20.1(b) reasonable?
Mr McMurchy submitted that the Plaintiff had not successfully demonstrated that any of the restraints under cl.20.1(b) were reasonable, with the result that they are invalid and unenforceable.
Mr McMurchy noted the Plaintiff's justification of the restraint in cl.20.1(b) as it being of the kind in Littlewoods in which Lord Denning MR explained that a covenant against competition may be justified where the employee has access to protectable information during the employment, but only "if limited to a short period".
Mr McMurchy submitted that four aspects of this principle are especially important in this case. First, the information that can be protected in this way must be either a trade secret or confidential information that has the capacity to cause real or significant harm to the covenantee if it is disclosed to a competitor (DP World at [30]). Second, the Second Defendant is the only putative competitor identified by the Plaintiff and the only point of reference for a question of the reasonableness of cl.20.1(b) so the Court should ignore the possibility of there being another competitor in answering this question. Third, a restraint of the kind authorised by Littlewoods must always be only for a short period of time. Finally, the application of the principle depends both on the nature of the information and the seniority of the employee (BGC Partners at [36], citing JMB (NSW) Pty Ltd v West [2020] NSWSC 1380 ("JMB") at [67]-[73]).
Mr McMurchy noted that the Plaintiff had fixed upon the date of the 2018 McMurchy Contract (February 2019) as the reference point for the enquiry of the validity of the restraint. By the 2018 McMurchy Contract, Mr McMurchy was appointed to the position of Outbound Sales Manager. This position involved managing a team in sales of the Plaintiff's subscription services (CB 3/579). This did not involve human resources software as none was introduced by the Plaintiff until BrightHR in October 2019.
Where, as here, the interest sought to be protected is the employer's confidential information, the Court must be satisfied that, at the time of contract, the nature of the employee's proposed employment was such that the employee would be exposed to the covenantee's confidential information, and that the information was of a kind that could be used by a competitor to the prejudice of the covenantee (Emeco at [100]). Mr McMurchy submitted the latter factor is an essential element of the rest and missing from the information upon which the Plaintiff relies. Further, that the information must be such that it would cause considerable harm to the owner of the secret if disclosed to a competitor (Lansing at 260 and 270; Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564; Miles at 530 [29]).
[44]
Should the restraint under cl.20.1(b) be enforced?
Mr McMurchy argued that to the extent that cl.20.1(b) is held to be valid, the following factors mitigate against enforcing it by injunction at all or in full.
First, to the extent that the restraint is held to be justified by the Plaintiff's interest in protecting confidential information, there is no likelihood that Mr McMurchy will remember it in a form that could be misused (JMB).
Second, the fact that Mr McMurchy has been on "gardening leave" since 12 January 2021. He submitted the period since then should be credited against the time for which the restraint might be enforced (see, e.g., Tullett Prebon at [66]).
Finally, the Plaintiff's delay (see, e.g., IceTV v Ross [2007] NSWSC 635 at [66]-[68], [78]).
[45]
Submissions of the parties in relation to the Second Defendant
[46]
Plaintiff's Submissions
The Plaintiff submitted that the Second Defendant was guilty of inducing breach of contract, being Mr McMurchy's inducement or encouragement of Mr Kumaran to leave the Plaintiff to take up employment with the Second Defendant.
First, there is no doubt that there was a contract between the Plaintiff and Mr McMurchy, being either the 2018 or 2015 Contract.
Next, the Second Defendant knew that a contract existed, up until no later than 11 January 2021. Ms Watt gave evidence that she understood that Mr McMurchy gave 4 weeks' notice of the termination of his contract of employment on about 14 December 2020 and that she understood that as of 14 December 2020 Mr McMurchy was still subject to a contract of employment with Employsure (T.84/17-20; T.84-38-40). The Court should infer that Mr Shevers was also aware, particularly in the absence of him being called as a witness.
Third, the Second Defendant knew that Mr McMurchy had obligations of fidelity to the Plaintiff (T.85/1-5), obligations to act in the best interests of the plaintiff (T.85/7-9), and obligations to be faithful and diligent (T.86/24-26). That was acknowledged by Ms Watt in cross-examination and it may be inferred through Mr Shevers. The Plaintiff submitted that the Court should conclude that Ms Watt and Mr Shevers knew that if Mr McMurchy took steps to encourage or induce employees of Employsure to leave Employsure and take up employment with the Second Defendant, that would constitute a breach of contract by Mr McMurchy. It was an obvious breach.
Fourth, the Court should conclude that Mr Shevers intended to induce or procure Mr McMurchy to breach his contract of employment with the Plaintiff by having Mr McMurchy approach Employsure employees, and particularly Mr Kumaran, with a view to recruit them to the Second Defendant. Mr Shevers had encouraged Mr McMurchy to provide details of other employees to him.
Fifth, the Plaintiff suffered loss or damage. Mr Kumaran did resign from the Plaintiff and joined the Second Defendant. The Plaintiff lost a valuable and experienced employee and had to go to the trouble and expense of replacing him.
Sixth, the Second Defendant does not rely on any defence of justification.
The Plaintiff argued these same factual matters support the conclusion that the Second Defendant knowingly assisted Mr McMurchy to breach his fiduciary duty by encouraging Mr Kumaran to join the Second Defendant. Liability for both knowing assistance in a breach of fiduciary duty turns on what the third party knew, or had reason to know, of the circumstances constituting the "dishonest and fraudulent design" of the fiduciary (Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [259]). Mr McMurchy's conduct in inducing Mr Kumaran to leave amounts to a transgression of ordinary standards of behaviour (Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 at [127]-[129]) and the Second Defendant knew or had reason to know of his conduct.
[47]
The Second Defendant's Submissions
The Second Defendant denied both factually and legally that Mr McMurchy had induced and encouraged Mr Kumaran to leave his employment with the Plaintiff to take up employment with it. If that denial is accepted, then the case against the Second Defendant as it is now put falls away. In any event, the Second Defendant's case is that it has not been demonstrated that the Second Defendant had the state of mind necessary to make good the Plaintiff's claims against it. The Second Defendant could not have actual or constructive knowledge of contractual or fiduciary obligations which, for the reasons given by Mr McMurchy are submitted did not exist.
[48]
Submissions of the Parties in the Kumaran Proceedings
[49]
Mr Kumaran has breached his restraint clause
The Kumaran Contract includes a term entitled "Restraint" (at CB 3/564, extracted above at [75]).
As with Mr McMurchy, that restraint is expressed to apply for up to 12 months, and throughout Australia.
The Plaintiff argued that if it was correct that the Second Defendant is a business "wholly or partly in competition" with the Plaintiff, by accepting and commencing employment with the Second Defendant, Mr Kumaran acted in breach of the post-employment restraint in his contract.
[50]
Mr Kumaran's post-employment restraint is reasonable
The Plaintiff submitted that reasonableness of a restraint is tested at the time of entering into the contract, but parties are entitled to make some allowance for potential developments in the role. Mr Kumaran entered into the Kumaran Contract at the time that he commenced with the Plaintiff in a sales consultant role. During his employment he received a number of promotions reflecting his performance (T.217/5-T.218/17) and he made it clear that he was keen to progress in the company (T.216/44-T.217/3).
The introductory paragraph to the "Restraint" clause in the Kumaran Contract (CB 3/563, extracted above at [75]) explicitly contemplated that Mr Kumaran may have access to the Plaintiff's confidential information, as did the "Confidential Information" clause also contemplated Mr Kumaran becoming aware of the Plaintiff's Confidential Information (as defined) (cl.9 of the Schedule of standard terms, CB 3/565B).
Therefore, at time of entry into the Kumaran Contract, the parties understood he may have access to the Plaintiff's confidential information. Further, given the Plaintiff's growth and Mr Kumaran's disclosed desire to progress in the business, it is reasonable for the parties to have contemplated at this time that Mr Kumaran may be promoted, as in fact occurred. Therefore, it was reasonable for the Plaintiff to seek to protect not only confidential information to which Mr Kumaran would have access in his initial role, but also confidential information that Mr Kumaran may have access to in any role to which he was promoted.
The Plaintiff submitted that its evidence dealt with the confidential information to which Mr Kumaran had access to during his final role as a Business Sales Partner, Inbound. This included information about the Plaintiff's digital marketing strategy, and sale process (Affidavit of Morris, 24 March 2021 at [93], CB 1/72 and CB 5/1576), being regularly informed of the productivity and success of the Plaintiff's inbound sales team (see, e.g., CB 5/1542; T.222/6-T.224/19), knowledge of the needs of potential customers contacting the Plaintiff (Affidavit of Morris, 24 March 2021 at [95], CB 1/72), and access to customer data such as pricing and contact names and information (Affidavit of Thomson, 24 March 2021 at [19]-[20], CB 1/89).
The Plaintiff argued that, as with Mr McMurchy, considerable weight is to be given to the parties' agreement to a 12 month restraint period. The Plaintiff seeks to enforce the restraint for 12 months after he ceased working - that is, until 11 February 2022.
[51]
Is the Second Defendant's business "wholly or partly in competition with" the Plaintiff?
Mr Kumaran submitted that despite some minor differences between the language of cl.20.1(b) in Mr McMurchy's 2018 Contract and the language of the restraints in his own contract, essentially the same questions arise in this issue as in Mr McMurchy's case, and they are to be answered in the same way. That is, the Second Defendant is not wholly or partly in competition with the business of the Plaintiff.
[52]
Are the restraints reasonable?
Mr Kumaran raised the same issues as identified in relation to Mr McMurchy, with the added difficulties for the Plaintiff that: (a) Mr Kumaran held the lowest level position in the Plaintiff's organisation (see JMB at [67]-[73]), (b) he had nothing to do with marketing (CB 1/103 at [66]), (c) his work involved only speaking with prospective customers who made contact with the Plaintiff, securing their interest, and then passing them on to salespeople, with the result that such knowledge as he gained of particular prospective customers was necessarily only ephemeral, (d) it was "very uncommon [for him] to have any opportunity to bring up BrightHR in conversation at all" (CB 1/101 at [62]).
[53]
Should the restraints be enforced?
Mr Kumaran submitted the restraints should not be enforced for the same reasons in relation to Mr McMurcy's restraints.
[54]
The McMurchy Proceedings - What contract bound the parties?
What follows is based not only what was received in open court but also what was received in confidential session.
Mr McMurchy resigned on 14 December 2020. Contrary to his submission that he was governed by his 2015 contract in my view he was in fact bound by his 2018 contract.
The determination of this question then determines the notice period required: 3 months or 4 weeks.
His initial 2015 contract offered Mr McMurchy a job as a "business sales consultant" with a probationary period of three months and he was to report to the Head of Sales. He was to receive a salary of $54,750 including superannuation payable fortnightly and was also to be paid a commission of 1.37% inclusive of superannuation of the net value on new business. It did provide for the employee a right to terminate on four weeks' notice (cl.10.2(d)).
There is no doubt that Mr McMurchy entered the 2018 contract which took effect from 1 April 2018.
Clause 2.3 of the 2018 contract states that it "supersedes" the 2015 contract. The effect of cl.2.3 quite clearly was for the 2018 contract to wholly replace the 2015 contract. That position is made abundantly plain by cl.26.1 that states that any previous agreements cease to have effect. He was to report to the Head of Sales and was to receive a salary of $109,500 and was to be called the "Outbound Sales Manager". Three months' notice was required to terminate the contract.
The 15 November 2018 "amendment" changed Mr McMurchy's line of reporting but referred to "the original Employment Agreement".
The 22 March 2019 "amendment", referred to "your contract of employment dated 23 January 2015") and it changed his line of report.
It cannot be gainsaid that there were five variation letters. But three merely recorded the person to whom Mr McMurchy reported. Another recorded a change to his job title.
The confusion obviously was caused by the repeated reference to his "contract of employment dated 23 January 2015". Mr McMurchy contends that these references were effective to reinstate the terms of his 2015 contract including the 4 week notice period.
The first amendment letter was on 22 November 2018. By this amendment his line of report was changed. Mr McMurchy signed a letter dated 15 November. This letter refers to the "original Employment Agreement".
[55]
What was the appropriate period of notice and when did Mr McMurchy's contract with the Plaintiff terminate?
The next issues were what the appropriate period of notice was and at what date Mr McMurchy's contract with the Plaintiff terminated.
Although the parties explored the possibility of some resolution none was reached. Mr McMurchy purported to give four weeks' notice. He did not say so in those terms, but his letter of 14 December 2020 stated his last day at work would be 11 January 2021. This provided for, in effect, four weeks' notice. He was I am satisfied informed twice that he was required to give three months' notice but obviously made a choice not to do so. He says he believed as his employment was governed by the 2015 contract four weeks' notice was all he needed to give. His intention of course is irrelevant on any view.
In my view he was at all times governed by the 2018 contract and was required to give three months' notice pursuant to cl.19.1 of the contract. He did not do so.
The question that arises is whether, in the circumstances of his letter of 14 December 2020 giving less notice than what was required, it was sufficient to terminate the contract. In my view it did not. The letter from Mr McMurchy clearly gave four weeks' notice and no more and he did it deliberately there can be no doubt. The letter was quite precise, and the choice of 11 January 2021 was no accident.
In so far as it is necessary to say so I do not agree with Parker J's analysis (in Employsure Pty Ltd v McMurchy [2021] NSWSC 139 at [58]-[61], on the interlocutory hearing and which is relied on by Mr McMurchy. His Honour thought on the basis of the decision of the House of Lords in Mannai that the letter arguably could be construed as implicitly giving notice sufficient to bring the contract to an end. In my view, with the very greatest of respect to his Honour, the letter when viewed in the full factual context (which became familiar in the hearing) could not reasonably be construed in that way. In my view, in any event I do not regard as arguable (not that I need concern myself with the interlocutory hearing) the letter is capable of giving anything other than four weeks' notice. Furthermore, I accept the Plaintiff's submission that where a party gives notice that is not of the required length, it does not operate to terminate the contract (Automatic Fire Sprinklers v Watson (1946) 72 CLR 435 at 447 (per Latham CJ) and 467 (per Dixon J)).
[56]
What obligations did Mr McMurchy owe?
Given his status I am also of the view that Mr McMurchy was bound by both contractual and fiduciary obligations. That is so from the general law perspective and also by reason of clauses 5.1(b) and 5.1(c).
Mr McMurchy was therefore obliged not to work for the second defendant as that was inconsistent with his respective legal obligations. He was obliged to avoid any situation where there would be a conflict with his loyalty to the Plaintiff. He had been central to the setting up of systems and processes for the launch of the BrightHR in Australia and managing the Bright business. Although I will come to the issue below in greater detail, he placed himself in a position as the "Sales and Customer Success Director" for the Breathe software in his new role at the second defendant.
In my view to accept employment with the second defendant he breached his express obligations with the Plaintiff.
Therefore, on my reasoning above Mr McMurchy was from 12 April 2021 subject to the post-employment restraints contained in the 2018 contract. And in turn that gives rise to one of the most significant issues in the case. The reason is the restraint clause, clause 20, is contingent upon Mr McMurchy being "engaged, concerned or interested, directly or indirectly whether as an employee or otherwise:
…in any business or prospective business in competition with [Employsure] at the time of the termination of employment.
The restraint (which I regard as the relevant one) is expressed to apply for up to 12 months.
[57]
In competition or not?
Before however coming to the question of whether it is reasonable the preliminary question is whether it can be said that the Plaintiff's business is relevantly in competition with that of the second defendant. This was an important issue indeed and it occupied a good deal of time at the hearing.
The ordinary rules of construction apply to restraint clauses. The task in every case is to ascertain the meaning which the words in the contract would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
I would accept as correct the Plaintiff's submission regarding the construction of the phrase "prospective business" in cl.20 that this includes the prospect of competition between the Plaintiff and some other entity. I prefer this to Mr McMurchy's argument that "prospective business" cannot apply to the Second Defendant as it was an established business at the date of termination, and it was the Plaintiff who at the time was not actually competing. Instead, the appropriate question is to ask whether there is competition between these two enterprises at the relevant time, being the date of termination or prospectively.
The words "competition" or competitor are not defined in the agreement. The restraint by its express terms is intended to cover "any business or prospective business "which may be in competition with the Plaintiff. The relevant date upon which the status of competition or not is at 12 April 2021 within the meaning of cl.20.1(b) of the 2018 contract.
The words "in competition" must be construed by what a reasonable person in the position of the parties would have understood them to mean given the commercial purpose or objectives to be secured by the contract.
In that regard the Plaintiff relied upon a decision of Black J in Veda. The point I consider is validly made that to be a competitor or a prospective competitor does not involve competing with the whole of the Plaintiff's business for the restraint to be enlivened. Provided some segment of economic activity undertaken by the Plaintiff is in competition with another entity I am of the view that is sufficient.
One would expect that the words "in competition with" are relatively commonplace in employment contracts. Accepting that each contract must be looked at in its context I also found useful the decisions of Black J in Veda Advantage and of McDougall J in News Life Media at [39] (although I accept a slightly differently drafted clause) when his Honour said "in assessing the question of competition it is necessary to look at the extent to which there is competition in some particular market".
[58]
What is a reasonable restraint in the circumstances?
I am therefore of the view that the time Mr McMurchy's 2018 contract ended the Plaintiff and the second defendant were in competition in the sense that that term should be understood in the contract.
The next question is whether the restraint in the 2018 contract is reasonable. That assessment of course needs to take place at the time of entry into the contract.
By the terms of cl.16.2 of the 2018 contract, Mr McMurchy acknowledged that confidential material would be disclosed to him. But this in one sense goes without saying because not an unimportant aspect of what occurred in 2018 was that he was promoted to the position of Outbound Sales Manager. In that role he was to contribute to the development and execution of the Plaintiff's overall business strategy and plan and to engage with key stakeholders. Mr McMurchy accepted as much in his evidence, T.106/43-50 and T.107/31-40. He also contemplated that he would on the assumption of the role becoming privy to the Plaintiff's strategic vision, T.111/10-13.
The role of Outbound Sales Manager was clearly a senior one within the Plaintiff. Mr McMurchy had a group of team leaders reporting to him who in turn had about 100 sales staff reporting to them.
Upon the assumption of his role as Sales Manager he began attending senior management team meetings and receiving team reports. He accepted again in his evidence that the materials he was then receiving were highly confidential, covering all aspects of the Plaintiff's business, T.114/10-T.115/5 and T.115/26-28. Mr McMurchy had an obligation to view the Plaintiff's offering holistically and in so doing he was obviously, of necessity, exposed to a significant amount of the Plaintiff's confidential material.
According to Mr Morris, the business of the Plaintiff had grown significantly since 2011 when it commenced its operations. It may safely be assumed that as Mr McMurchy was employed from 2015 and promoted in 2018, he obviously participated in the expansion of the business and must have gained intimate knowledge of its strategic strengths and weaknesses. Ultimately, however, his appointment as Manager for BrightHR gave him a particular cachet. He was involved in the launch, development, marketing and support of the BrightHR business in Australia. He was in a unique position to gauge the product's shortcomings and its potential developments. He was also involved in its marketing and was exposed no doubt to confidential information in that regard which could be used by the Second Defendant to the detriment of the Plaintiff. This is information that would have informed Mr Shevers whose role was to closely consider the experience and utility of Mr McMurchy's work at the Plaintiff in terms of his suitability at the Second Defendant (T.78/15-20). The position at the Second Defendant also being a senior leadership role (T.81/30-34).
[59]
Did Mr McMurchy breach his contract in his communication with Mr Kumaran?
A further question that arises is whether Mr McMurchy breached his contractual and or fiduciary duties to the Plaintiff by inducing or encouraging Mr Kumaran to leave the Plaintiff.
It will be recalled that he was obliged pursuant to cl.5.1(b) and cl.5.1(c) to both faithfully and diligently perform and in doing so promote the interests and prosperity of the Plaintiff. He was also subject to an implied obligation of fidelity and good faith.
There is little doubt that if it be the fact an employee seeks to persuade a fellow employee to resign and accept a position elsewhere that would be to the detriment of the employer such that that employee would be in breach of his/her contractual and or fiduciary duties.
Mr McMurchy resigned by letter of 14 December 2020 having accepted employment with the second defendant on 11 December 2020.
On 14 December 2020 Mr McMurchy offered to supply the second defendant with the names of potential sales employees. That arises expressly from a message exchange between Mr McMurchy and an employee of the second defendant, Mr Shevers, CB3:785. There had been a discussion between the two in which Mr Kumaran had been mentioned, T.100/38-39, T.138/9, T.138/11-14,19-20,49-50.
In any event Mr McMurchy responded to Mr Shevers later on 14 December in which he mentioned three employees, Mr Kumaran being one, CB 3/793. Mr McMurchy and Mr Shevers communicated the next day again, CB 3/793 by message from which it may reasonably be inferred there was some further discussion. Mr Shevers was not called in the proceedings and Mr McNurchy said nothing about the matter in evidence.
But the very next day Mr McMurchy wrote to Mr Shevers indicating that each of the three employees previously mentioned (importantly Mr Kumaran) was "very keen on the role and opportunity", CB 3/794.
It may reasonably be inferred from that communication that Mr McMurchy could only have communicated in those terms if he had approached them about a role with the second defendant and that they were interested.
It is also clear that Mr Shevers had made arrangements to meet with one of the other employees on 23 December 2020, CB3:794.
Mr McMurchy accepted in his evidence that he called Mr Kumaran at about the time he provided Mr Kumaran's name to Mr Shevers as potential candidate to tell him he was leaving the Plaintiff and that he was taking up a position with the second defendant (at Breathe) and that it would be a good opportunity for him. He also told him how exciting the opportunity was, T.140/6-17 and he explained to Mr Kumaran what the role and opportunity with the second defendant was, T.140/31-33.
[60]
The case against the Second Defendant
However, although Mr McMurchy engaged in subversive conduct, the further question arises as to the extent his conduct implicates the second defendant.
It is put that the second defendant should be held liable for the tort of inducing a breach by Mr Kumaran of his contract with the Plaintiff.
The Plaintiff rightly acknowledges the relevant components of the tort, and of course bears the onus to prove each. Those components can shortly be described as requiring the Plaintiff to prove each of the existence of a contract, knowledge on the part of the defendant as to the existence of a contract, knowledge on the part of the defendant that some act on the part of one of the contracting parties would involve a breach and lastly but importantly an intention on the part of the defendant to induce or procure a contracting party to breach the contract and lastly that the breach has caused loss to the plaintiff.
The first three may in most cases be safely inferred as almost de rigueur in any employment or commercial context and here is no exception.
Here, Ms Watt accepted she understood that Mr McMurchy gave 4 weeks' notice of his employment on 14 December 2020 (T.81/420-48; T.84/15-20) and it would follow that she understood he was still subject to contract with the Plaintiff. And given the dates of their communicating I am satisfied Mr Shevers would also have had the same knowledge.
It may also be inferred that either Mr Shevers or Ms Watt (although she seems to have been a little out of touch, see, e.g., T.70/45-50; T.71/15-20) must have known that Mr McMurchy had obligations both contractual and fiduciary to act in the Plaintiff's best interest. Ms Watt agreed that she would have expected as such (T.85/1-10). It may also be inferred that Mr Shevers at the least would have known that to encourage or induce an employee of the Plaintiff to leave its employ would amount to a breach of contract by Mr McMurchy. Ms Watt considered Mr Shevers was just doing his job as "sales talent acquisition specialist" (T.72/50) by asking the likes of Mr McMurchy to recruit other employees to leave contrary to the recruiters contractual and or fiduciary obligations (T.87/32-33). Ms Watt indicated that it was an active part of her brief to take candidates from competitors (T.93/10-20). It does seem rather odd that a person holding a position as Ms Watt would find that conduct acceptable. But perhaps in her case it is not.
[61]
The case against Mr Kumaran
Mr Kumaran commenced employment with the Plaintiff on or about 27 February 2018.
On each of the two occasions he was promoted he signed a letter reaffirming his original contractual terms set out in the letter of offer of 19 February 2018.
Prior to leaving the Plaintiff he was one of eight business sales "partners" (denoting a senior sales employee) and he earned $134,000 per annum.
Having received an offer from the second defendant he resigned from the Plaintiff on 28 January 2021.
He was obliged to give four weeks' notice but the Plaintiff accepted two weeks' notice in ignorance of the fact that he had accepted employment with the second defendant, Affidavit of Thomson, 24 March 2021, [10]-[11]. The plaintiff only became aware of his employment with the second defendant on 12 February 2021.
It should be noted that after proceedings were commenced against him, Mr Kumaran gave undertakings not to use or disclose the Plaintiff's confidential information.
Mr Kumaran pursuant to his contract is restrained from working for any entity which is "wholly or partly engaged…in competition…" and for a period of 12 months.
As a result of my earlier findings as to the respective businesses of the Plaintiff and the second defendant, Mr Kumaran was in breach of his contract by working for the second defendant.
Mr Kumaran prior to his departure to the second defendant was in a sales consultant role. He had received a number of promotions but not as many as he thought he deserved.
There is no doubt that Mr Kumaran was expected to be exposed to highly confidential information in his various roles. That was obviously understood at the outset hence the relevant contractual terms.
The coalescence between the Plaintiff's growth and Mr Kumaran's promotion and ambitions is the very dynamic it is reasonable to suppose the parties contemplated at the time the contract was entered. The restraints imposed upon and agreed to by Mr Kumaran to protect the use or misuse of the Plaintiff's confidential material were entirely reasonable on the Plaintiff's part.
There is no doubt that at the very least in his final role as a "sales partner" he had access to a good deal of confidential material about digital marketing and the strategies and productivity of the inbound sales teams, Affidavit of Morris, 24 March 2021, [90]-[98] and the emails at CB5:1542,1544.
[62]
Conclusion
The 2018 McMurchy Contract, as amended by the variation letters, was relevantly in force when Mr McMurchy resigned on 14 December 2020. The references to his "contract of employment dated 23 January 2015" in the variation letters did not reinstate the terms of the 2015 McMurchy Contract, to do so would have led to an objectively absurd result, including significantly less remuneration. Further, no reasonable person could have rationally believed that the variation letters would only be reinstating the former contract in relation to one element, being the shorter period of notice. The reference to the 2015 McMurchy Contract should be read as a reference to the contract of 20 February 2018 (as amended by the letter dated 15 November 2019) and I would therefore rectify the contract at common law.
As it was the 2018 McMurchy Contract which governed the parties' relations it follows that Mr McMurchy was required to give three months' notice pursuant to cl.19.1. He did not do so.
Mr McMurchy's letter of resignation purporting to give four weeks' notice did not operate to terminate the contract. Rather, the contract was still in force on 12 January 2021 when the Plaintiff gave Mr McMurchy three months' notice of termination, bringing the contract to an end on 12 April 2021. Mr McMurchy had repudiated his contract and while it was open to the Plaintiff to accept it, they did not. He was, from 12 April 2021, subject to the post-employment restraints contained in the 2018 McMurchy Contract.
By reason of the general law, and clauses 5.1(b) and (c) of the 2018 McMurchy Contract, Mr McMurchy was bound by both contractual and fiduciary obligations to the Plaintiff. Therefore, Mr McMurchy was in breach of his contract when he took up employment with the Second Defendant on 19 January 2021. Doing so without the Plaintiff's informed consent was also a breach of cl.18.2 of the 2018 McMurchy Contract. Clause 5.1 required him to devote the whole of his time to his duties for the Plaintiff.
Undertaking the task of construction, using the ordinary contract rules, I examined the restraint in cl.20 of the 2018 McMurchy Contract. This involved asking whether there was competition between the Plaintiff and Second Defendant at the date of termination or prospectively. I accept that the words "in competition" (which are undefined in the contract) may refer to some segment of economic activity undertaken by the Plaintiff in competition with another entity in some particular market. Even despite BrightHR not being sold as a stand-alone product I find that the different software are in competition. In my view, the price difference of the products is relevant in an assessment of competition, but not defining. The backbook customers alone provide a sample of customers who both entities could compete for. Furthermore, there is contemporaneous evidence that the Second Defendant and Mr McMurchy considered the Plaintiff to be a competitor.
[63]
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Decision last updated: 17 September 2021
Breathe Software Pty Ltd was registered on 1 September 2020, and is wholly owned by the Second Defendant (CB 3/732-733). The Second Defendant established that wholly owned subsidiary to sell Breathe in Australia and New Zealand (CB 1/153 at [24]).
Breathe is targeted at businesses with up to 50 employees, although can be used by businesses with up to 200 employees (CB 1/153 at [25]).
Mr Kumaran received a promotion to the position of Business Sales Executive, and then a further promotion to the position of Business Sales Partner, Inbound with effect from 4 November 2019. On each occasion he signed a letter noting that the Kumaran Contract otherwise remained unaltered and continued to apply (CB 3/623).
In his final role of Business Sales Partner, Inbound, Mr Kumaran was one of only 8 business sales partners with Employsure (a 'partner' is the most senior level of sales employee within Employsure's sales employees) and was paid by both base salary and commission. He earned about $134,000 in his final year of employment. He worked within a team that received 'inbound' sales leads from potential customers who had self-identified a need for or interest in Employsure's products and services.
The Plaintiff contended that the termination of Mr McMurchy's employment contract occurred by means of the 3 months' notice given by Employsure on 12 January 2021, which took effect on 12 April 2021.
After asking for a short period to consider his position (CB 3/955 and CB 3/9982-985), Mr McMurchy commenced employment with the Second Defendant on 19 January 2021. However, he only worked for 2 days as a result of the commencement of these proceedings and undertakings given by him, and subsequently injunctive relief granted by the Court.
Mr McMurchy's position with the Second Defendant involves managing a sales team selling the Breathe software, and managing the support of existing Breathe software users (CB 4/1339-1341).
On 22 January 2021, Mr Kumaran received an offer of employment from the Second Defendant, and then a further and revised offer dated 25 January 2021, both of which proposed a commencement date of 12 February 2021 (CN 3/988-1003).
On 28 January 2021, Mr Kumaran gave notice of his resignation from Employsure, with his last day of employment to be 11 February 2021 (CB 3/1004).
Shortly after he gave his notice, Mr Kumaran told his direct manager, Mr Rory Thomson, that he had a couple of options as to where he worked next, including the Commonwealth Bank.
Although Mr Kumaran was required by his Employment Contract to give 4 weeks' notice, he gave 2 weeks' notice, and Employsure accepted the shorter period of notice in circumstances where it was not aware (and Mr Kumaran did not disclose) that he had already accepted employment with the Second Defendant.
On 2 February 2021, Mr Kumaran was provided with a letter accepting his shortened notice period and reminding him of his obligations to Employsure after the employment ended, including by providing him a copy of his employment contract (CB 4/1030).
On 12 February 2021, Mr Kumaran commenced work at the Second Defendant. On that day Employsure became aware of his employment.
Mr Kumaran's position with the Second Defendant is described in his letters of offer as "Account Executive", reporting to the General Manager (CB 3/988). Mr Kumaran describes his role as supporting existing customers of the Second Defendant's Breathe software and seeking to sell that software to potential customers who have taken up a free trial of that software (Affidavit of Mr Kumaran, 1 April 2021 at [44]-[45]). Ms Watt describes Mr Kumaran's position as a customer support and sales role associated with the Breathe software product (Affidavit of Ms Watt, 6 April 2021 at [62]).
On 15 February 2021, the Plaintiff's solicitors wrote to Mr Kumaran, informing him that by working for the Second Defendant he would be in breach of the post-employment restraint in the Kumaran Contract (CB 4/1046-1050). The letter sought undertakings to confirm that Mr Kumaran would comply with his contractual obligations to Employsure.
On 18 February 2021, Mr Kumaran's solicitors wrote to Employsure's solicitors (CB 4/1060-1065 and 1074A). By means of that letter, Mr Kumaran provided certain undertakings, but did not provide any undertaking that he would not be engaged or concerned with any other competing business including the Second Defendant. The letter stated that Mr Kumaran had commenced employment with the Second Defendant on 12 February 2021.
The reasonableness of a restraint is tested at the time of entering into the contract, but taking into account future probabilities that could have been foreseen (Woolworths v Olson [2004] NSWCA 372 ("Woolworths v Olson") at [40]). Some allowance can be made for potential developments in the role and the nature of the business for which an employee might be responsible in the future (Stacks Taree v Marshall [No.2] [2010] NSWSC 77 at [46]). Potential developments include the prospect of promotion as an ordinary incident of employment (Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 ("Cactus") at [37]). Further, if the parties should be expected to realise that they are dealing with a business that might be expanding, the covenant can be that which is reasonable to protect the contemplated expansion (Sidameno (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [71]).
In Tullet Prebon, Brereton J (as his Honour then was) explained what might constitute a protectable interest as follows (at [47]):
A covenantee is not entitled to be protected against mere competition; the legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter [Vanderwell Products Ltd v McLeod [1957] RPC 185; Tank Lining Corporation v Dunlop Industries Ltd (1982) 140 DLR (3D) 659, 664], including trade secrets and confidential information, and goodwill including customer connection.
See also Tullett Prebon at [47]; Koops Martin at [30]).
While the Court gives considerable weight to what parties have negotiated and embodied in their contracts, but a contractual consensus cannot be regarded as conclusive, even where there is a contractual admission as to reasonableness (Woolworths v Olson at [39]).
The protection against the misuse of confidential information or trade secrets to an employer's detriment after the departure of an employee is recognised as a legitimate protectable interest that can justify a post-employment restraint (Woolworths v Olson at [67]; Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187; [2012] FCAFC 111 at [52]-[54]).
Where confidential information is relied upon to support a post-employment restraint, it is not necessary to identify with the same particularity the relevant confidential information, as compared to the position when enforcing an equitable obligation of confidence or a direct restraint against the use of confidential information (Miles v Genesys Wealth Advisors Ltd (2009) 201 IR 1; [2009] NSWCA 25 ("Miles") at [22]-[26]). "[T]he court must be satisfied of the anticipated existence of confidential information at the time of contract, and of potential prejudice to the employer's interests from the information" although the confidential information need not be identified with precision (Emeco International Pty Ltd v O'Shea (No 2) (2012) 225 IR 423; [2012] WASC 348 ("Emeco") at [100]). A restraint clause is not automatically invalid because an employee no longer has documents which contain the specific information or does not recall the details of the information (DP World Sydney Ltd v Guy (2016) 262 IR 156; [2016] NSWSC 1072 ("DP World") at [49], relying on The Littlewoods Organisations Ltd v Harris [1978] 1 All ER 1026 ("Littlewoods") at 1038-1039).
It can be practically difficult to prove a breach of a covenant against the use of confidential information. In Littlewoods at 1033, Lord Denning said:
Experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his (or her) head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he or she undertakes not to work for a trade rival. Such a covenant may well be held to be reasonable if limited to a short period.
Therefore, in recognition of these difficulties, a non-competition covenant may be held to be an appropriate means of protecting a company's legitimate interests in preventing the disclosure of confidential information to a competitor: Woolworths v Olson at [67]; John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 at [36], [37]).
A restraint is justified because of the difficulty of proving what the former employee has done or is doing or intends to do for the competitor (Red Bull Australia Pty Ltd v Stacey [2011] NSWSC 1212 at [35]).
The ordinary rules of construction apply to a restraint clause. The task is to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [11]).
In Just Group Pty Ltd v Peck (2016) 264 IR 425; [2016] VSCA 334 ("Just Group") (at [38]), the Court held that where there is an ambiguity, a restraint will be construed in favour of the employee so that, as between two reasonably available constructions, the one which imposes the lesser obligations on the employee will be preferred.
In Two Lands Services Pty Ltd v Cave [2000] NSWSC 14 ("Two Lands Services") (at 62), it was held that a restraint should be construed with reference to the object of "the protection of one of the parties against rivalry in trade". The Court clarified at [65]) that a rival in trade must necessarily operate in a similar manner.
These principles were summarised and reiterated by Gleeson JA (with whom Bathurst CJ and Beazley P agreed) in Izaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 at [59]-[72].
Furthermore, the 2015 McMurchy Contract provided for annual remuneration of $54,750 per annum while the 2018 McMurchy Contract provided for $109,500. If Mr McMurchy's argument is correct, the effect of the variations would be to reinstate the former remuneration which would be a striking and absurd result.
That the objective intention was not to reinstate the 2015 McMurchy Contract is reinforced when viewed in the context of the amendment from the letter dated 15 November 2018. All that was intended by that letter and the letter dated 22 March 2019 was to alter Mr McMurchy's line of report. The reference to 2015 in the latter letter is an obvious error.
The Plaintiff submitted that the objective intention of the parties is clear and that the Court can read the reference in the 22 March 2019 letter (and subsequent letters with the same language) to 2015 as a reference to the contract of employment dated 20 February 2018 (as amended by the letter dated 15 November 2018), or the reference to the 2015 agreement can be omitted entirely.
Nothing was said or done by the parties at the time of agreeing to the variation letters that contradicts the objectively clear intention that those letters were seeking to effect variations to the 2018 McMurchy Agreement. Mr McMurchy accepted that at the time there was no discussion about reinstating his 2015 Contract (T.119/10; T.119/24-28; T.128/11-12).
The Plaintiff submitted that the two conditions necessary for a Court to correct contractual language to avoid absurdity or inconstancy are both met here. Therefore, the Court can apply the principle expounded in Fitzgerald v Masters to amend or omit the references in the contract variation letters to the "contract of employment dated 23 January 2015" such that they reflect the parties' objective intention to effect variations to the 2018 McMurchy Contract.
If rectification by construction is not available, then rectification in equity is available to achieve the same outcome, and the Plaintiff seeks rectification to the same effect as above.
The Plaintiff argued there is no doubt as to its actual intention. Mr Michael Morris, the Plaintiff's "Talent Director" who was responsible for its HR function, signed four of the variation letters on behalf of the Plaintiff. His uncontested evidence was that the references to 2015 were administrative errors and at no time was he requested to, nor did he intend to reinstate or reintroduce the terms of the 2015 McMurchy Contract (Affidavit of Mr Morris, 24 March 2021, at [55]-[57]). Ms Lisa Allen, a "Talent Manager" within the Plaintiff who signed the final variation letter gave evidence to the same effect (Affidavit of Ms Allen, 22 March 2021, at [5]-[8]).
In relation to the variation letter dated 22 March 2019, Mr McMurchy's affidavit evidence was that at the time he believed the Plaintiff was seeking to make a deliberate change to revert from the 2018 Contract to the 2015 Contract (Affidavit of Mr McMurchy, 3 April 2021, at [67]). Mr McMurchy did not give evidence as to his actual intentions in relation to other variation letters, save, as noted above, that he agreed in cross-examination that he did not think that the variation letter dated 15 November 2018 did anything other than change the identity of his line manager.
The Plaintiff argued Mr McMurchy's evidence that he believed it was seeking to revert to the 2015 Contract should be rejected. Under cross-examination, Mr McMurchy could not give a coherent or plausible basis for this belief.
Mr McMurchy stated he believed the variation letter intended to change "the standard terms", but accepted he did not believe his salary would be reduced nor his responsibilities changed (see T.120/5-T.122/11; T.126/17-44 and T.127/35-T.128/13). His only explanation for his alleged understanding at the time was that it came from the introductory line of the letter, "Your contract of employment dated 23 January 2015 (Employment Agreement) is being amended as follows…" (emphasis added), notwithstanding those words were followed by a specific amendment to the person to whom he reported (T.128/35-T.129/48 and T.130/41-49). He agreed the letter identified a very narrow amendment (T.130/31), but suggested at the time he had a different understanding because of "the atmosphere in which [it] was presented to me" (T.130/37-39).
Given that Mr McMurchy accepted that he did not understand that the letter would result in a change to his salary, to his job title or to his duties, the Plaintiff submitted it follows that he could not have understood that it was seeking to make a deliberate change to revert to the 2015 Contract. Rather his evidence appears to be that only some of the terms of the 2015 Contract were reinstated, but that finds no support in the language of the letter dated 22 March 2019. The belief or intention that Mr McMurchy advances is inconsistent with the language of the letter. Moreover, it is questionable whether Mr McMurchy could have truly believed the variation would revert to the 2015 Contract and not clarified with someone. Therefore, the Court should conclude that Mr McMurchy's intention was to formalise a change in his line of report.
The Plaintiff submitted that when Mr McMurchy decided to join the Second Defendant in late 2020, it was in his interests for the notice period to be 4 weeks rather than 3 months so it is likely it was at this time he persuaded himself or came up with the argument that the 2015 Contract had been reinstated.
Thus either by the proper construction of the contractual documents, or, if necessary, as a result of the remedy of rectification, as at December 2020 Mr McMurchy was bound by cl 19.1 of the 2018 McMurchy Contract to give a period of notice of 3 months in order to terminate the contract.
The Plaintiff has an alternative case in the event that the Court concludes that the 2015 McMurchy Contract applied in December 2020, such that Mr McMurchy was entitled to give 4 weeks' notice of termination and thus validly ended his employment on 11 January 2021. In those circumstances, Mr McMurchy breached the post-employment restraint in the 2015 McMurchy Contract by subsequently commencing employment with the Second Defendant.
The Plaintiff submitted that unlike the position in Mannai, it would not have been obvious to a reasonable recipient of Mr McMurchy's notice that Mr McMurchy was intending to give notice to terminate the contract of employment 3 months from the date of the notice, rather that he was purporting to give 4 weeks' notice. Moreover, Mr McMurchy was not intending to give 3 months' notice and confirmed as such in subsequent correspondence (CB 3/801).
The Plaintiff admitted that it may be accepted, as Parker J noted at [60] that if the notice merely contained the first line (that Mr McMurchy was resigning from his position), then it would be effective to terminate the contract after 3 months. Such a notice would implicitly give 3 months' notice. But the notice also included the second sentence specifying the last day of Mr McMurchy's employment period. The "incorrect identification of the notice period" in the second sentence was not a slip or obvious error in the Mannai sense. To this very day, Mr McMurchy contends that the reference to 11 January 2021 in the notice was intended and involves no error. On close analysis, what Parker J described as arguable, is not.
Next, the Plaintiff dismissed Mr McMurchy's argument that cll.5.1(a) and 18.2 are an unreasonable restraint of trade and thus invalid. Mr McMurchy suggested that those clauses operate oppressively where Mr McMurchy could be (and was) placed on "gardening leave" while his contract remained on foot. The Plaintiff noted, however, that this is exactly what the parties agreed could occur (cl.19.3 at CB 3/573). As noted by Parker J in Employsure v McMurchy at [42], the outcome advanced by Mr McMurchy would deprive the notice and gardening leave provisions of much of their practical utility. It is also notable that in Tullett Prebon, Metcash and BGC Partners a restraint that applied while the employment contract remained in place was held to be reasonable and enforceable, notwithstanding that in each case the employee had ceased actual work.
The Plaintiff rejected Mr McMurchy's argument that it had accepted his repudiation by directing him to return all of its property in its solicitors letter of 12 January 2021 (CB 3/950-954). The Plaintiff argued the letter was not a direction to return property on termination of employment, rather directed Mr McMurchy to return all property and confidential information of the Plaintiff in light of his indication to commence with the Second Defendant, stating that access to the Plaintiff's IT system and property required for specific tasks would be provided on an "as needs" basis (at CB 3/951). Furthermore, the letter was clearly affirming the contract and not accepting a repudiation, because the Plaintiff gave 3 months' notice in accordance with the contract and expressly stated Mr McMurchy would remain employed with it until 12 April 2021. The letter also relied on the gardening leave clause and clarified Mr McMurchy would continue to be paid. There was no unequivocal act on the part of the Plaintiff to accept the repudiation and to terminate the contract with immediate effect (United Australia Ltd v Barclays Bank Limited [1941] AC 1 at 30 per Lord Atkin).
Next, the Plaintiff addressed Mr McMurchy's suggestion that cl.18.2 should be construed as limited to additional employment rather than "entirely new employment". If this is intended to mean that "while employed by [Employsure]" when used in cl.18.2 only refers to the period while Mr McMurchy is actually working and does not include any period while the employment contract remains in place but the "actual employment" has concluded, then it should not be accepted. Viewed in context, it is apparent that cl.18.2 applies while the employment contract remains on foot even if the actual employment has come to an end. See, in support of that position, the use of "employed" in the definition of "Termination Date" in cl.1 (CB3:568), and the reference to "Termination of employment" in the heading to cl.19 (CB3:573). Those references to "employed" and "employment" are clearly references to the whole of the period up to the termination of the employment contract. The contrary position would allow Mr McMurchy to unilaterally bring that obligation to an end on the basis of his own breach and deprive the notice period of its practical utility for the employer. The Plaintiff relied on similar discussion in BGC Partners at [66]-[83].
Further, Mr McMurchy held the role of "Manager Bright" and had been involved in the setting up of those systems and the launch of BrightHR in Australia so there was a clear potential for the use of that information in his new role at the Second Defendant.
The Plaintiff submitted that the Court should adopt the discussion of the ordinary meaning of "competitor" in Veda Advantage at [28].
The Plaintiff submitted that its BrightHR software and the Second Defendant's Breathe software, while having some different functionality, are similar products aimed at the same market, being the "SME HR software market" (Report of Mr Guazzarotto at 5.9.6 at CB 2/450) or the "SME focussed HR Technology market" (Report of Ms Moore at 5.1 at CB 2/245).
The Plaintiff's BrightHR allows for managing leave, storing employee documents, managing rostering, tracking working hours and breaks/leave, dealing with probation periods, and performance management, as part of its functionality (CB 1/30-31, Affidavit of Marsden, 23 March 2021 at [15]).
Overlapping significantly, the Second Defendant's Breathe software has functions that include centralised employee data storage, managing leave, organising (i.e., storing) employee documents, enhancing performance management and payroll management (CB 4/1077A-1077B). The payroll function is optional and involves additional cost (CB 4/1077B). Breathe, and Breathe with payroll, can be thought of as two separate products, with the basic Breathe software not including the payroll functionality (T.68/45-T.69/16).
The Plaintiff submitted that Mr Guazzarotto's oral evidence was consistent with his opinions in this report that both software products were aimed at the same market, and that while the software had some differences in functionality, both products met the needs of and are suitable for "the SME HR software market" (Report dated 7 April 2021 at 5.8.1 (CB 2/448)).
Contrastingly, Ms Moore in her oral evidence moved away from the opinions expressed in her report that there would not be a market for BrightHR as a stand-alone product in competition with Breathe, and that BrightHR lacked some significant functionality that was present in other software in the market (see 11.1 to 11.3 of Ms Moore's report at CB 2/427-428).
Mr Plavsic expressed the opinion in his report that Breathe and BrightHR are two products with similar attributes (Report dated 24 March 2021 at 6.4-6.8, CB 2/216-217) and that customers would view them "to a great extent, as substitutes and compete in the same market" (Report dated 24 March 2021 at 6.8, CB 2/217).
Dr Coker's evidence was that the two software products differed significantly in price, availability and suitability (or functionality) (Report at 3.1.3, CB 2/350). Dealing only with the latter issue of any difference in suitability or functionality, Dr Coker acknowledged that he was not a HR expert (T.155/29 and T.156/4) and his evidence on this issue cannot be preferred over the essentially agreed position of Mr Guazzarotto and Ms Moore that the two software products have similar functionality, and both have the core functionality that an SME is looking for in HR software.
Furthermore, the Plaintiff highlighted that there is evidence that prior to the proceedings commencing, BrightHR Ltd in the United Kingdom considered Breathe to be a similar and substitutable software product (see Affidavit of Marsden, 23 March 2021, Confidential Ex JM7, CB 5/1477-1482; Affidavit of Marsden, 23 March 2021, Ex JM1 at p 103, CB 3/744).
Both products are aimed at SMEs, in particular, those with up to 50 employees. The Plaintiff argued it is worth noting the size of the SME market. Australian Bureau of Statistics ("ABS") reports relied upon by both Mr Guazzarotto and Ms Moore suggest that there are about 50,000 businesses with 20-199 employees, which they take as an approximation of the SME market for HR software (CB 2/444, Guazzarotto report, 7 April 2021, at 5.3.2; CB 2/427, Moore report, 1 April 2021, at 10.1.3). Mr Plavsic used ABS statistics to estimate that there are approximately 860,000 businesses in Australia with less than 50 employees (CB 2/223, Plavsic report, at 6.30). On either basis, the market is substantial.
The Plaintiff therefore argued that the fact that BrightHR and Breathe are similar and substitutable products aimed at the same market would mean that it was clear that the Second Defendant was "in competition with" (from the 2018 McMurchy Contract) or was "a business that competes with" (from the 2015 McMurchy Contract) the Plaintiff. If the products of each business compete, then the businesses compete (Veda Advantage at [28]).
The Plaintiff submitted that the expert evidence as to the meaning of competition supports that view. Mr Plavsic stated that "competition refers to the rivalry between suppliers of products for the demand of consumers or customers" (T.148/46-47). While Dr Coker had commented in his report on the possibility of market segments, his definition of competition was the same, being "the idea that two firms compete for the same customers" (at 3.1.1 at CB 2/350).
The Plaintiff admitted that the complication in these proceedings is that its BrightHR product is not obtainable as a standalone product. A potential customer wishing to acquire the product must do so as part of an Employsure subscription that also provides access to Employsure's advisory and consultancy services. The Plaintiff noted, however, that the 2018 software licence agreement that allows it to supply the BrightHR software in Australia required it to have established, by 1 October 2019, a sales team responsible for marketing and promoting the sale of the software as a standalone product (CB 5/1365, at cl.5.3.3). This was delayed due to the current Covid-19 pandemic (CB 1/40, Affidavit of Ms Marsden, 23 March 2021, at [66]; T.57/3-8).
The Plaintiff argued that notwithstanding the BrightHR software is not presently able to be obtained as a stand-alone product, the Second Defendant and Breathe represent a business in competition with the Plaintiff, in three dimensions.
First, there are approximately 17,000 businesses who currently have a subscription with the Plaintiff which does not include access to the Bright software (CB 1/58, Affidavit of Morris, 24 March 2021, at [26]). This is referred to as the "backbook", because it represents older Employsure subscribers who took out subscriptions before it started supplying the BrightHR software. The Plaintiff intends on selling the Bright software to the "backbook" in future (CB 1/194-196, Affidavit of Nicholson, 9 April 2021, at [8]). For an extra fee, those subscribers can add the BrightHR to their existing package, and for them the software is an alternative and substitutable product. There is therefore a head to head competition in respect of this large group of business. It does not matter if the Second Defendant does not specifically target that group of customers, it is sufficient they fall within the general class of persons to whom the Second Defendant promotes Breathe.
Mr Plavsic supported the above conclusion (CB 2/224, Report at 7.2; T.181/29-34). Dr Coker disagreed but the Plaintiff submitted his evidence on that issue was somewhat incoherent and should not be accepted.
Second, while the Plaintiff's business model is to seek to obtain new customers by selling on subscription a package of services that includes the BrightHR software along with other HR consultancy services, the Plaintiff is willing and does enter into new subscription arrangements with customers that exclude the BrightHR software from the customer's subscription package. Customers who exclude the BrightHR software receive a discount on the price of the usual subscription including the BrightHR software (CB 1/59, Affidavit of Mr Morris, 24 March 2021, at [28(d)]). Thus, for SMEs who are not subscribers to the Plaintiff, the BrightHR software can be removed from any Employsure subscription they obtain such that they are then free to subscribe to the Breathe software (or any other comparable HR software). In that respect, the Breathe software and the BrightHR software are substitutable and compete in the market comprised of SMEs with up to 50 employees who are seeking HR software and who do not already have an Employsure subscription.
Third, for prospective clients who may be interested in taking up the Plaintiff's services which includes the HR consultancy services and the BrightHR software, an alternative is to take up the Breathe Software and to obtain HR consultancy services from a third party. That is, even proceeding on the basis that Plaintiff supplies its BrightHR software as part of a bundle with other services, there is still competition with the Second Defendant for SME businesses, because an alternative option for those businesses is to take the Breath software from the Second Defendant and HR consultancy services from another provider, so as to create a "bundle" similar to the Plaintiff's subscription services.
The Plaintiffs preferred the evidence of Mr Plavsic who said (at T.195/47) that he believed that where a variation of 20-30% in price between products was present those products would still be competing. It was at a 50% difference that was on the boundary of competition and at that point onwards products could be said not to be competing.
Mr Plavsic believed there was no evidence to suggest the supply of HR software bundled with HR consultancy services was a "cluster market" (a market were competition was based on the joint supply of complementary products" (CB 2/222-223, Report, at [6.24]; T.154/12-23). Dr Coker was also prepared to accept that businesses that supply a bundle of products can compete with businesses supplying individual products within the bundle in certain contexts, including in relation to Employsure's bundle of the BrightHR software and its HR consultancy services, as compared with a customer obtaining the Breathe software and HR consultancy services from either Employsure or another provider (T.182/25-50). Dr Coker was nevertheless not prepared to accept that meant there was competition between the BrightHR product and the Breathe product (T.184/9-19). The Plaintiff submitted his evidence on the issue should not be accepted and Mr Plavsic's should be preferred.
The Plaintiff submitted that there is evidence that at the time of launching Breathe, the Second Defendant considered the Plaintiff and its software to be a competitor.
For instance, there was evidence that the Second Defendant's marketing for the Breathe software includes Search Engine Marketing ("SEM") where an organisation pays a search engine for "keywords", which means that searches using those words generate responses that display the website address of the organisation that has paid for the relevant words (CB 4/1097-1097A).
The Plaintiff elaborated in oral and confidential submissions (at T.254/8-26) that this means that a person who googles Employsure will receive an ad from Employsure and from Breathe (see CB 4/1073). When a person searches for BrightHR Australia the first ad that appears is for Breathe (CB 4/1073A). The Plaintiff submitted that it could be inferred that appeared because of the search engine marketing policy of the Second Defendant and that the fact that the Second Defendant is paying Google for its Breathe ads to appear in response to a search for the term BrightHR or associated keywords is absolutely clear evidence of competition.
The Plaintiff (at T.252/22-30) highlighted that in evidence Mr McMurchy was asked about competition in 2018, and at that time, he identified the Second Defendant as a direct competitor of Bright, and said his view about that did change about that, but importantly, not until about the time these proceedings were commenced. Therefore, from 2018 to late 2020 or early 2021, it was Mr McMurchy's own view that the Second Defendant was a direct competitor of the Plaintiff. Furthermore, Ex.P8 demonstrated that Ms Gonsalves, the Second Defendant's marketing manager for the Breathe product, identified the Plaintiff as a competitor. The Plaintiff submitted that if anyone was in the position to do so, it would be Ms Gonsalves, given her position (T.253/11-12). Further, that the evidence regarding her demonstrates the active steps taken by the Second Defendant in competing with the Plaintiff (Confidential Transcript of Day 6 at T.16/22-31).
The Plaintiff argued that Ms Watt's evidence that she had not heard of Employsure in January 2021 (T.191/11-T.192/13) was of little or no value. She was the Second Defendant's Chief Human Resources Officer and not directly involved in marketing the Breathe Software (T.70/48) so is unlikely to have been as familiar with Breathe's competitors as other officers or employees at the Second Defendant. Second, the evidence was contradicted by her admission that she had heard of Employsure as a result of interviewing Mr McMurchy (T.92/7). Third, Breathe did not launch until February 2021, so it is not surprising she was unfamiliar with it in January 2021. More compellingly, Ms Gonsalves, the Second Defendant's marketing manager for Breathe, specifically identified Employsure as a competitor in February 2021.
The Plaintiff argued that Mr McMurchy's evidence indicated he considered the Second Defendant to be a competitor of the Plaintiff from October 2019 until about the time of the proceedings (CB 3/618-619; T.132/37; T.141/48).
Mr McMurchy's position as Manager Bright gave him access to the Plaintiff's confidential information regarding the BrightHR software and the way it was marketed and supported.
The Plaintiff submitted that the protection of its confidential information provides a proper basis for the non-competition restraint in the 2018 McMurchy Contract.
On the Plaintiff's alternative case, being that at the time Mr McMurchy gave his notice of termination in December 2020, the 2015 McMurchy Contract applied, the reasonableness of the post-employment restraint in that contract would be assessed at the time of agreeing (on this scenario) to "resurrect" the 2015 Contract. On this scenario, the considerations regarding confidential information discussed above would apply with at least equal strength
The Plaintiff argued there were three important distinguishing factors between Hodgson and these proceedings. First, here Mr McMurchy did encourage and entice Mr Kumaran to join him at the Second Defendant (T.101/21). Second, Mr Kumaran had not, independently, made a decision to leave the Plaintiff and join the Second Defendant. He was considering options (T.101/21) and had not applied for any positions (T.226/1-3). Third, at the time Mr McMurchy called Mr Kumaran to encourage him to join the Second Defendant, he did not know whether Mr Kumaran was contemplating employment elsewhere.
The Plaintiff submitted that if it was correct that at the time Mr McMurchy spoke to Mr Kumaran that Mr Kumaran was contemplating a move elsewhere that is precisely where the Plaintiff is at its most vulnerable to a breach of contract by Mr McMurchy. For Mr McMurchy to take the initiative to contact Mr Kumaran and to encourage him to leave Employsure to join the Second Defendant cannot be excused just because, coincidentally so far as Mr McMurchy was concerned, Mr Kumaran was contemplating leaving of his own accord. It is not for the Plaintiff to prove that Mr Kumaran would have remained with it but for Mr McMurchy's intervention. The Plaintiff was entitled to expect that, consistent with his contractual and fiduciary obligations, Mr McMurchy would not suggest the prospect of employment elsewhere.
The Plaintiff commented that it has not been suggested, nor is there any basis for suggesting, that Mr Kumaran would have sought employment with the Second Defendant had Mr McMurchy not called him and encouraged him to do so. While Mr Kumaran may have been disappointed on missing out on a promotion, the Plaintiff lost the opportunity for him to become reinvigorated as an employee; instead Mr McMurchy's actions led directly to Mr Kumaran's departure from the Plaintiff in favour of the Second Defendant.
Finally, if these submissions are not accepted, then any breach by Mr McMurchy could only result in nominal damages.
In the alternative, if the Plaintiff's constructions is accepted, and cl.20.1(b) is engaged by competition involving only a "segment" of the Plaintiff's economic activities, then the way in which the Plaintiff has advanced its case means that the question then becomes whether BrightHR and the Second Defendant's Breathe are in competition with one another. In that event, Mr McMurchy's submission is that BrightHR and Breathe do not, in fact, compete with each other, because, notwithstanding that they have similarities, they are materially different products that appeal to consumers who want materially different things.
Mr McMurchy argued that the Plaintiff's focus on the "backbook" was a narrowly defined market - in effect, a segment of a segment of the Plaintiff's business, and evidence about this market was thin. Mr McMurchy submitted that the existence of this market is purely theoretical, without a single proven instance of competition in it. If the market does exist, then it is impossible for the Court to make findings about its size. While there is evidence that there are about 17,000 pre-October 2019 subscribers in the Plaintiff's back book (CB 1/58 at [26(c)]), there is no evidence demonstrating how many of these are actually in the market for human resources software. All that is relevantly known about the "backbook" market is that Employsure does not seek to market BrightHR to subscribers in the "backbook" by targeted marketing or sales efforts.
Mr McMurchy submitted that moreover, and decisively in this case, it is common ground that price is a determinative factor in ascertaining whether two products are in competition (see, e.g, CB 2/216 at [607] (Plasvic) and CB 2/359 at [4.4.8]-[4.4.11] (Coker)). Throughout the proceedings the Plaintiff was coy about the amount it charges "backbook" customers for BrightHR. The amount provided to Parker J in the interlocutory hearing did not accurately reflect the complexity of calculating the cost of BrightHR to pre-October Employsure subscribers seeking to add it to their subscription; and the prices that the Plaintiff gave Mr Plavsic to work with were in a specially constructed document that included only those figures for five-year subscriptions - as it turned out, the cheapest available subscriptions. In his confidential submissions, Mr McMurchy provided figures comparing the pricing for Bright (without payroll), Breathe (without payroll) and Breathe (with payroll), for differing amounts of employees.
Mr McMurchy submitted that therefore BrightHR and Breathe were not in competition, even in the narrow market selected by the Plaintiff as being most favourable to its case.
Mr McMurchy rejected the Plaintiff's reliance on its future intentions in relation to the marketing of BrightHR. He argued the correct construction of cl.20.1(b) is that the expression "in competition with" refers only to competition that actually exists at the time when the restraint is sought to be engaged. The clause is cast in the present tense, connoting present not prospective competition. Therefore, the Court must answer whether the Second Defendant is currently in competition with the Plaintiff, and not whether there is some intention by the Plaintiff to one day be.
This was further reinforced by Mr McMurchy's submission that the words "prospective business" in cl.20.1(b) refers to the putative competitor and not the Plaintiff (T.280/41-T.281/20). The Plaintiff is captured by the expression "the company" which is defined, so the words "business or prospective business" were an attempt by the draftsperson to capture the possibility that the putative competitor has a less than complete form, for example, a business not yet incorporated. Here, however, the Second Defendant was an established business and had Breathe at the date of termination. Although the Plaintiff had Bright at that time it was not actually competing.
Mr McMurchy argued that the Plaintiff could not rely on his previous opinion that the Second Defendant and the Plaintiff were in competition (T.275/18-37). This was because it was based on a false premise: the Second Defendant did not own Breathe at the time.
Mr McMurchy (at T.283/6-22) highlighted the comments of Gleeson CJ in Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329 to argue that the correct focus is not on the classification of the information as being confidential in nature, as the Plaintiff does here, to justify restraint. Rather, it is the way in which the information can be used that is critical and that engages the proposition that a restraint that protects an employer against unfair competitive advantage is one that can be justified.
Mr McMurchy submitted that the Plaintiff's evidence did not meet the test regarding particularity. While the degree of particularity of the evidence to satisfy a court will vary depending on the case, it must be "particularised sufficiently to enable the court to be satisfied that the plaintiff has a legitimate interest to protect. That requires an inquiry as to whether the plaintiff is in possession of confidential information which it is entitled to protect" (Scully (UK) Ltd v Lee [1998] IRLR 259 at 263; see also FSS Travel and Leisure Systems Ltd v Johnson [1998] IRLR 382 at 385). When asked to identify what it asserted to be the confidential information in contemplation when parties agreed to the restraint, the Plaintiff replied "...without in any way being exhaustive…Mr Morris' affidavit…at paragraphs 64-66; and Ms Marsden's affidavit…at paragraphs 27-116" (CB 1/23).
The Plaintiff identified two classes of what it asserts to be confidential information. The first was that "to which Mr McMurchy had access as a result of becoming a member of Employsure's senior management team…" (CB 1/65). This would appear to be the "Senior Management team monthly reporting" (CB 1/65) and there are only three such reports in evidence (CB 5/1507-1513), and Ex.P2 and P4. There is no direct evidence that any of the information contained in these reports, or that was discussed at the meetings could be used by the Second Defendant to the detriment of the Plaintiff and no evidence to support such an inference.
The second category of allegedly confidential information is described by Mr Morris as "information regarding the bright business" (CB 1/65 at [66]). Mr McMurchy rejected the Plaintiff's submission that this information was reasonably in contemplation at the time of the contract because it was reasonable to expect Mr McMurchy may be further promoted as an ordinary course of employment or as the business expanded.
He argued that these propositions are not made out in the evidence. There is no evidence to infer it was reasonable for the parties to have contemplated the possibility of further promotion. Further, there is no evidence upon which to infer that it would have been reasonable for the parties to have contemplated the possibility of the Plaintiff expanding its business by including BrightHR, or any human resources software, in its subscription services. There were no plans even contemplating BrightHR in February 2018. The licensing agreement granting the Plaintiff the right to market the software is dated 6 December 2018, much later than the February employment contract (CB 5/1361).
The information relating to BrightHR on which the Plaintiff relies can be organised into six classes. The first is Salesforce (CB 1/65 at [66A]), a large database containing "client information and prospective client information". The Plaintiff has 27,000 clients and there is no evidence of how many more potential clients the database relates to (CB 1/58 at [26(b)]). There is no suggestion Mr McMurchy ever copied or carried away part of the database. He gave unchallenged evidence that he has any memory of its contents (CB 1/183 at [181]). Therefore his access to Salesforce would not lead to the acquisition of any information that could be used by him after his employment ended. There was no evidence that someone could use Salesforce to identify which clients had subscriptions to BrightHR. Even if it were possible to do so and a person could remember the contents of the database, the information they would obtain would not be detrimental to the Plaintiff.
The second category consisted of "strategy documents" (CB 1/66-67 at [66b], [66e], [66k], [66m], [66o]) and the documents referred to in Ms Marsden's affidavit at [27]-[116] (CB 1/66 at [66c] and [66d]). The issues that these documents address concern the relationship between BrightHR and the Plaintiff's core business of providing human resources consultancy and advisory services, or problems occasioned by the fact that BrightHR had originally been developed and was still controlled in the United Kingdom. There is no evidence of how this could be of any interest to the Second Defendant nor that the knowledge the Plaintiff was confronting these issues could be of any use to the Second Defendant.
Third was various "metric reports" (CB 1/66 at [66c] and [66d]) and "usage reports" (CB 1/66 at [66f] and [66j]). The information contained in these reports is of a kind or a form such that Mr McMurchy submitted he could not reasonably have remembered it in any meaningful way (Emeco International Pty Ltd v O'Shea (No 2) (2012) 225 IR 423 at [141]). Further, there is no evidence Mr McMurchy ever copied or carried away any of the information, nor is there evidence that this information would be of use to the Second Defendant.
Fourth was pricing information (CB 1/66 at [66g], [66h] and [66i]). There was no evidence that information would be of use to the Second Defendant. Mr McMurchy's unchallenged evidence as that the price of BrightHR "was a percentage of the Employsure contract based on the headcount of the business. I do not know how the Employsure contracts were priced" (CB 1/140 at [181(j)]).
Fifth was documents about data migration (CB 1/67 at [66n]) and payroll integration [CB 1/67 at [66p]). These documents concern issues about the functionality of BrightHR so could not be of use to the Second Defendant. Sixth was a document about a $2500 expenditure on a marketing video (CB 1/67 at [66l]).
Mr McMurchy submitted there are two further deficiencies in the Plaintiff's evidence. First, there was no demonstration that any of the information had a currency that would justify a period stipulated in cl.20.1(b) (see, e.g., Miles v Genesys Wealth Advisers Limited (2009) 201 IR 1 at [27], [65]). Second, there was no attempt to explain why the covenants in cl.16 of the 2018 McMurchy Contract are insufficient to protect such information as is truly confidential (see, cl.16.2(e)).
It was argued that the Court can be satisfied that information regarding the Plaintiff's sales processes, including for example sales scripts, is information that the Court would accept would remain commercially valuable for a reasonable period after Mr Kumaran left Employsure.
The Plaintiff recognised that s.4(1) of the Restraints Act would allow for reading down of Mr Kumaran's restraint if deemed appropriate.
The seemingly critical letter for these proceedings is dated 22 March 2019. The letter states that Mr McMurchy's employment contract dated "23 January 2015 (Employment Agreement) is being amended". The letter goes on to indicate that he would thereafter report to "the head of business unless notified otherwise".
The letter further states that the "conditions of your employment remain unaltered and your Employment Agreement otherwise continues to apply…".
To suggest, as Mr McMurchy does, that the letter had the effect of wholly replacing the 2018 contract is in my view untenable. It could not in my view be suggested that the repeated reference to 2015 could reasonably be understood to a contractual regression. The terms of each of the variation letters made reference to quite specific changes and given the comprehensive nature of the 2018 contractual changes, it would be obvious in my view to any reasonable person that reference to 2015 was clearly a mistake.
No reasonable person receiving this letter in my view in the context could imagine that the terms of the 2015 contract was thereafter to govern the employment relationship and do that matter only in one very limited respect namely the period of notice, not his job title, his remuneration or his responsibilities. That would be an utterly absurd result.
The parties had in my view clearly and unequivocally by the contract dated 20 February 2018 expressly replaced the contract dated 23 January 2015.
To speak of amending a contract that had expressly been replaced is absurd. The most obvious reason why the second defendant's submission on this point is untenable is that no-one could reasonably have imagined that Mr McMurchy was taking a substantial reduction in salary back to 2015 levels. The 2015 employment contract provided for a remuneration annually of $54,750 whereas the 2018 contract provided for annual remuneration of $109,500.
It rather beggar's belief (even if it were relevant) that Mr McMurchy thought by some means his period of notice only was being changed (T.118/30-50 to T.119/1-25; T.120-121). And it must have come as a shock to Mr McMurchy that he was being demoted in some way. I consider his evidence on the topic, even if it were relevant, as a complete contrivance and concoction. That of course has no impact on the objective test to be applied but it does have some impact on his credit generally. As a result of what I regard to be a complete contrivance I am able I am satisfied to infer that he never really believed.
The terms of the letter make clear in my view that it is an amendment and not a replacement.
As a matter of commercial common sense was that his line of report was being changed. The error was so obvious in my view that to suggest to the contrary is untenable.
It seems to me that no reasonable person could rationally suggest that Mr McMurchy, who was by 2018 a senior employee, was being forced into some promotional regression in only one respect: his period of notice. On the face of the documents I consider it would and should objectively be regarded as an absurdity and that it would objectively have been evident to the parties that that was so.
On that basis alone I would make orders amending or omitting the references to "23 January 2015" and declaring that the parties' true objective intention was to amend the then existing 2018 contract.
There is no need in the circumstances therefore in the light of what I regard as an appropriate rectification by construction to resort to equitable rectification which requires proof of an actual common intention.
The evidence, however, of the common intention is first that of Mr Michael Morris who signed four of the five variation letters which he says uncontroversially was to the effect that the references to the 2015 contract were administrative errors and at no time did he intend to reinstate the terms of the 2015 contract. Ms Lisa Allen who signed the final letter gave evidence to similar effect. It was also uncontested.
Mr McMurchy as I have already said gave what I regarded to be contrived and implausible evidence that the process of reference to "2015" was out of a deliberate attempt on the part of the Plaintiff to make changes to the contract. His evidence as it progressed only served in my view to underlie the contrived nature of it. He could not (and for good reason) explain why the changes affected him but not in relation to his responsibilities and salary. My own view is that his persisting in this untenable manner is because he considered it assisted him in the litigation.
I am of the view that if he had told the truth he would have agreed that the reference to "2015" was not what was intended and if it was necessary to do so I would find that there was a common intention that any reference to "2015" was at all times meant to be a reference to the 2018 contract. I accept that would involve me finding that was untruthful as to his real intention (T.1302-3).
It is clear in my view what the objective intention of the parties was and that it was not to regress to a 2015 contractual regime in part or in whole. Rather, it seems to me that the reference to the contract dated "23 January 2015" should be read as a reference to the contract of employment of 20 February 2018 (as amended by the letter dated 15 November 2018). As submitted as an alternative the reference to 2015 could be omitted entirely.
On any view I consider a case is made out for the court to rectify the contract at common law.
As he gave notice only of four weeks his contract was not brought to an end. The result is that he remained in effect employed by the Plaintiff until 12 January 2021 when it gave him three months' notice of termination which brought his contract to an end on 12 April 2021.
It also follows in my view that Mr McMurchy was in breach of his 2018 contract with the Plaintiff in taking up employment with the second defendant on 19 January 2021.
It also follows in my view that he was in breach of cl.18.2 of the 2018 contract by reason of the fact he did not have the Plaintiff's written consent to be employed by the second defendant. He was required by cl.5.1 to devote the whole of his time to his duties for the Plaintiff.
In my view the Plaintiff was entitled to direct Mr McMurchy not to take up his employment with the second defendant. It also seems to me that at the very least during the notice period of three months and while his contract was still on foot, the restraint sought to be imposed by the Plaintiff not to work for the second defendant was reasonable. I am unable to see as has been suggested that to so restrict Mr McMurchy was oppressive.
The letter of 12 January 2021 from the Plaintiff's solicitor could not in my view amount to a repudiation, quite the contrary. It could not objectively be construed as bringing the 2018 contract to an end. On the contrary, it expressly affirmed it, stating that Mr McMurchy should treat himself as employed by the Plaintiff for the three months to 12 April and gave him directions only consistent with him being put on gardening leave (clauses 19.3 and 19.7 of the 2018 contract). It also offered to continue to pay him if he did not work for the second defendant and did not disclose any confidential information. It is tolerably clear that Mr McMurchy had in fact repudiated his contract and it was open to the Plaintiff to accept it, but they did not.
I should also say that contrary to a submission made by the Second Defendant clause 18.2 must in my view on a proper construction cover any activity he engages in "while employed by [Employsure]" whether he is physically working or not (CB 3/574-575). The word used in clause 18.2 covers his legal status not his physical status. It would make a commercial nonsense in my view of the provision unless it covers the whole period the employment contract is on foot.
The evidence here suggests that the Plaintiff offers its clients a number of products and services including a consulting service and an advisory service and it's 'BrightHR' and 'BrightSafe' software products.
The Bright software developed in the United Kingdom and licensed to the Plaintiff is aimed at SMEs with up to 50 employees. It is for the purpose of allowing such entities to streamline their HR functions.
New customers of the Plaintiff who take their product offerings are encouraged to take the Bright software but are not obliged to. It also attempts to sell Bright to existing customers.
In February 2021, the Plaintiff had 23,316 subscribers with 10,311 having Bright software as part of their subscription.
The second defendant describes its product as software to provide a "comprehensive suite of HR, payroll and rostering / time and attendance solutions..."
It announced it had acquired the "UK HR platform Breathe" in its media release of 7 October 2020, describing it as a "self-service HR platform" and highlighted its relevance to small businesses of less than 50 employees. It is not controversial that the second defendant launched the Breathe software in Australia on 4 February 2021 including launching a new website for Breathe on 11 February and it started selling the Breathe software on or about 21 February 2021.
I am satisfied that BrightHR and Breathe are for all intents and purposes similar products aimed at the same or similar markets. That they have some different functionality does not in my view detract from that conclusion. There are price point differences discussed below.
Both in their own ways manage leave, storing or managing employee documents, and enhancing performance management. I should add the fact that the Breathe software for an additional cost can provide a payroll function again in my view does not detract from finding them competitors. There is no suggestion there is any technological superiority between the respective softwares.
Both sides called experts who had had experience in working with and advising organisations in relation to HR software. The plaintiff called a Mr David Guazzarotto and the second defendant a Ms Sarah Moore. Both were clearly qualified to express their respective opinions. In the end I did not perceive, especially when they were questioned, any real and substantive differences in their basic opinions, however I did prefer the evidence of Mr Guazzarotto.
I accept the evidence of the Plaintiff's expert Mr Guazzarotto who said that having regard to the functionality of the Breathe and BrightHR software, both met the functional requirements of core HR solution. He thought the two offerings were substantially similar (T.199/47-48).
As I appreciated their evidence Mr Guazzarotto and Ms Moore, (the defendants' expert) identified that both offerings had similar core functions, (T.200/34-43). Ms Moore did of course make reference to the payroll function available with Breathe but also fairly conceded that many small businesses do not require it because they have a separate payroll software such as Xero or MYOB (T.202/26-29).
Although they appeared to agree that both offerings contained several identical core functions, roster management was in BrightHR only and payroll was only available with Breathe only.
Again, I consider that they appeared to agree that different functionality did not mean the offerings were not in the same software market for SMEs (T.202/16-24). Importantly I consider that they accepted as stand-alone products both BrightHR and Breathe were software products selling into the same market namely providing SMEs with HR software solutions and equally importantly that it is appropriate for a potential customer to first consider what software solution they want before excluding BrightHR because it is not sold as a stand-alone product (Mr Guazzarotto at T.208/18 and Ms Moore at T.207/3-11).
I am satisfied that Ms Moore in her oral evidence softened or mellowed her initial views expressed in writing that there would not be a market for BrightHR as a stand-alone product with Breathe. That is why in the end I do not consider there was much in substance to separate she and Mr Guazzarotto in their respective views.
There was also expert evidence tendered by both sides on more general questions of competition and whether the two products or offerings competed in the same market.
The Plaintiff also called a Mr Bryant Plavsic, an economist and consultant, and the second defendant called a Dr Brent Coker, a marketing academic at the University of Melbourne. I should say that in the end although their opinions differed as discussed below I prefer the evidence of Mr Plavsic largely due to the fact that some of Dr Coker's explanations and examples given to explain his views were somewhat extreme and if I may say so unrealistic.
Mr Plavsic was of the view that both the BrightHR and Breathe software have generally similar attributes (although he did concede that some attributes were missing from one and some from the other) and that the two products would be viewed by customers as substitutes and compete in the same market.
Dr Coker's views were that the two products differed significantly in price availability and functionality. The latter view of course would appear to be at odds with the evidence of Mr Guazzarotto and Ms Moore that the two products have similar functionality. I also note that Dr Coker accepted he was not an HR expert (T.154/36-T.155/48).
Dr Coker made the point in his report that products could be sold into the same general market but not be competing for the same customers or into different market segments. He stated that if two firms do not compete for the same customers they are not in competition. But in his oral testimony he accepted that in order to assess whether two entities compete in a market it is necessary to have regard of the thinking of all consumers in a market.
The mainstay as it were of Dr Coker's position was understandably focused on the fact that the BrightHR product is not able obtained as a stand-alone product and for a customer to do so they must do so as part of a subscription to other advisory and consultancy services provided by the Plaintiff. It accepted that BrightHR is likely to be sold as a stand-alone in the near future.
However, the view I have come to in the end is that notwithstanding the BrightHR software cannot be sold as a stand-alone product does detract from it being in competition with Breathe. I would acknowledge the evidence of Mr Plavsic regarding a 20-30% difference in price as still allowing competition, but a difference of 50% or higher potentially putting products out of range to compete. I also take into account the confidential submissions and aide memoire of the parties showing the price difference between the companies in their offerings based on the number of employees and length of plan. I accept the Plaintiff's submission that there are obvious differences and multiple combinations that can be used to compare the products (T.252/5-7). In the end, I do not consider the price point as determinative. Any decision by a consumer will necessarily be idiosyncratic. For those interested in pure bottom line figures there are clear advantages economically for both products. An analysis based purely on economics is likely to be simplistic. Rather, the decision making process turns on perceived needs, what each consumer considers value for money and the relationship between sales person and client which, for example, in relation to BrightHR may lead to a negotiated discount of 10% (see Confidential Transcript of Day Two at T.5/1-4). It would also involve consideration not only of a customer's current business size but also aspirations and commercial strategies. I note without criticism that not one consumer was called to give evidence by either party.
Therefore, although relevant, price is not the only factor and it cannot be said will always be a determining factor. The very simple reason for that it does not comprehensively define the entire market. It does not take into account the fact that a relevant consumer yet to put a software package in place may wish to weigh up the benefits of what might be regarded a complete solution with Employsure which could come as an add-on the BrightHR to the subscription or put together and entirely different solution which might involve Breathe with or without the payroll solution and or MYOB or Xero. In other words, relevant consumers on the threshold of their decision making are potentially both looking at their HR and other software solutions. They might choose an Employsure subscription and add BrightHR or they might choose Breathe (with or without the payroll function) and supplement that solution in other ways.
The Plaintiff also points out there are 17,000 businesses who currently have subscription to Employsure which does not include access to the BrightHR software. This is referred to in the case as the backbook. For an added fee these existing customers can add BrightHR or there is nothing stopping them choosing Breathe instead. The Plaintiff rebutted the defendants' argument that even if some of these employees already have an HR software program, they cannot be potential clients for the Plaintiff, arguing that they are in fact good candidates with a pre-existing relationship with the company. For that group it is said the Plaintiff and the second defendant are in direct competition. For obvious commercial reasons the second defendant may not regard their chances of capturing a sizeable body of already existing Employsure customers but is a group of consumers the second defendant would wish to attract.
Mr Plavsic thought that both software providers were in fact competing for these customers (T.181/29-34) and that the correct price comparison was the comparison between the cost of the Breathe product and the add-on cost for BrightHR to an existing Employsure subscription. Dr Coker on the other hand could not accept that as a reasonable comparison. For some extraordinary reason he could not grasp that as a matter of logic or even theory that a person who did not have BrightHR software as part of their subscription had a choice whether to add BrightHR or acquire Breathe. I regard Dr Coker's views as untenable and I do not accept them.
The evidence also supports the position that although Employsure for obvious reasons would ideally like to sell a subscription package that includes BrightHR, that it is willing and in fact does sell the subscription package minus BrightHR in which case the customer receives a discount (Affidavit of Mr Morris, 24.03.21, at [28(d)]). Therefore, for persons who are not existing subscribers they may have the BrightHR component removed in which case they could, if they wished, obtain Breathe.
Another category of consumers is those who could take their HR consultancy services from someone other than Employsure and take the Breathe software from the second defendant creating a bundle similar to that offered by the Plaintiff.
Mr Plavsic thought the mere fact that the Plaintiff offered a bundle detracted from it being seen as in the same market as the second defendant and he said so expressly in his report at 6.24-6.29 and at T.154/12-23 and T.172/30-34.
Dr Coker accepted that in theory a supplier of a package could compete with someone only supplying one component by reference to the travel industry, T.171/15-34 and importantly in relation to the Plaintiff's bundle of the BrightHR software and its HR consultancy services as compared with a customer obtaining the Breathe software and HR consultancy services from a third party provider or perhaps the Plaintiff, T.182/25-50. He was not however prepared to accept that that concession had the effect of accepting that there was competition between BrightHR and Breathe. I do not accept Dr Coker on this point and I again regard his evidence as untenable.
There is evidence that at the time of launching its Breathe software the second defendant considered the Plaintiff and the BrightHR software to be a competitor. This is referred to in the report of Mr Plavsic at 5.29 and the evidence of Dr Coker at T.191/12-33.
There is also evidence which is in the confidential materials. Whilst on the anecdotal front I have put to one side the evidence of Ms Watt (the second defendant's Chief Human Resources Officer) that she had not heard of Employsure at the time Mr McMurchy was being recruited so as to perhaps suggest they could not be competitors. I put her evidence to one side of being of little value as it is likely a reflection of her limited role and experience within the second defendant (perhaps as she was not concerned with marketing). Her ignorance of the fact is however rather perplexing given the marketing manager of the second defendant for the Breathe product, Mr Gonsalves who specifically identified the Plaintiff as a competitor in February 2021.
Mr McMurchy himself (at or about the time BrightHR was launched in October 2019) considered the second defendant to be one of the Plaintiff's direct competitors along with others, CB 3/618-619. He said in his evidence that he had changed his views around the time of the proceedings which is rather co-incidental and convenient. I do not accept his evidence on that issue.
However, on all of the evidence I am satisfied I should find that the BrightHR and Breathe products are similar products aimed at the same or similar market being the SME HR market, such that they should be regarded as competitors or "in competition".
The fact that the parties agreed to a restraint of twelve months should be given significant weight but that in itself is not conclusive.
In determining reasonableness an assessment must be made as to the length of time the Plaintiff's confidential information remains current and of commercial advantage. I accept that Mr McMurchy was in a position where he was to support and deliver strategy and to that end would have had and been interested to have a real interest in commercially sensitive information. But there can be long-term and short-term strategies and of course strategies change.
Mr McMurchy was working for the Plaintiff at a key moment in the development of BrightHR but there must be an element of reality attaching to placing too much weight on the possibility that a departing employee could retain information for too long apart from the information arguably becoming outdated. It may be accepted that strategic considerations may fall into a slightly different category. In all the circumstances and given the nature of the confidential information in this case and Mr McMurchy's status I consider a period of nine months' restraint in the circumstances, beginning on 12 January 2021.
Here it is put that Mr Kumaran had independently decided to leave his employment. However there is no doubt in my mind that Mr McMurchy both identified Mr Kumaran as a potential target for the second defendant and he, by the very approach and words used, set out to encourage Mr Kumaran to join him in his new "exciting" employment, (Mr McMurchy,T.101/42-45,T.140/6-17 and Mr Kumaran, T.228/43-45).
And whilst I accept Mr Kumaran might have been disgruntled at not being promoted by the Plaintiff I do not on the evidence consider he had made a decision to leave apart from considering his options and he had not applied for any positions, (Mr Kumaran, T.226/1-3).
In any event I am also not satisfied that Mr McMurchy could have come to the conclusion that at the time he spoke with Mr Kumaran, he had decided to leave the Plaintiff's employ, T.101/4.
Whilst Mr Kumaran may have been less than impressed with the Plaintiff at the time Mr McMurchy spoke with him he was clearly susceptible to Mr McMurchy's approach and was "ripe for the picking". To that extent, the Plaintiff was entitled to expect that Mr McMurchy would attempt to entice employees away. Here there is no suggestion in my view on the evidence that Mr Kumaran had decided to leave let alone know about an opportunity at the second defendant were it not for Mr McMurchy.
The notions of inducing or encouraging are qualitatively different to advising, however, I accept fine distinctions may be involved. But the terms and the tone of the messages between Mr McMurchy and Mr Shevers persuades me that Mr Shevers was caught up in positively encouraging Mr McMurchy, actively to recruit amongst others Mr Kumaran to leave. Mr Shevers was speaking to Mr McMurchy about the "best approach" to adopt and wanted to speak to Mr McMurchy about the "next steps". The fact that Mr McMurchy informed Mr Shevers that Mr Kumaran was "looking out for your message " and that he, Mr Kumaran, was "very keen on the role and opportunity" smacks of enticement, encouragement and / or inducing, not merely the giving of advice. I am satisfied on the state of the evidence as a whole, especially by reason of a failure to call Mr Shevers, that the requisite intention on the part of the second defendant has been proved.
If it were necessary to do so I am also satisfied Mr Shevers' conduct amounts to knowing assistance on his part in Mr McMurchy breaching his fiduciary duty by encouraging Mr Kumaran to leave the Plaintiff's employ.
There is no doubt the Plaintiff has suffered loss in Mr Kumaran resigning. He was an employee who had to be replaced at expense to the Plaintiff.
He was intimately involved in the needs and potential needs of customers and he made himself aware no doubt of customer data including their identities and dealings.
There is no doubt that the Plaintiff has a legitimate interest in the protection of its confidential information to which he has and indeed it was reasonably contemplated he would have access to.
Mr Kumaran agreed to a 12-month restraint. Again, that is important but not conclusive. The length of the restraint depends on the time the employers' information will remain current. Given his status I am of the view that much of what he may have been exposed to will have evaporated from his head and in the circumstances a nine month restraint is sufficient and I would read down the contract accordingly.
The general question that I consider arises is if and to what extent I should grant injunctive relief.
It is impossible to evaluate precisely what specific confidential information either Mr McMurchy or for that matter Mr Kumaran have in their heads. But I consider that when Mr McMurchy was with the Plaintiff he played such an integral role in the development of the strategy and positioning of BrightHR and he had such a vested interest in those activities that it is highly likely he has retained an unspecified but nonetheless an amount of material information. The other factor which is here relevant is that he and Mr Kumaran will now apply their contractual and fiduciary obligations in the interest of the second defendant. Even on their own I would consider injunctive relief appropriate but together I consider it would be even more appropriate to restrain the real possibility of them using acquired knowledge and familiarity with the Plaintiff's confidential information.
I accept that both Breathe and BrightHR are software products being sold in the same or similar markets, providing SMEs with HR software solutions. At the time that Mr McMurchy's 2018 contract ended, the Plaintiff and Second Defendant were in competition.
I found that the restraint in the 2018 McMurchy Contract was reasonable at the time of entry into the contract. The parties contemplated that Mr McMurchy would be privy to confidential information and the nature of his role further reinforced this. The information he was exposed to was commercially sensitive and would have had both longer and shorter term relevance. I therefore consider a period of nine months' restraint from 12 January 2021 reasonable in all the circumstances.
Mr McMurchy took an active part in ensuring Mr Kumaran left his employment with the Plaintiff for the Second Defendant, in breach of his contract. While Mr Kumaran may have been dissatisfied at work it was not until Mr McMurchy directed him to the Second Defendant that he made a decision to leave.
Mr Shevers of the Second Defendant took positive steps to encourage Mr McMurchy to recruit Mr Kumaran and others to leave the Plaintiff's employ, with knowledge of Mr McMurchy's fiduciary obligations to the Plaintiff. The Second Defendant knowingly assisted in the breach of the 2018 McMurchy Contract and the Plaintiff suffered loss as a result.
In relation to the case against Mr Kumaran, I note that he was contractually bound to give four weeks' notice but the Plaintiff accepted two weeks in ignorance of the fact he had accepted employment with the Second Defendant. He did so in breach of his contract with the Plaintiff. In his role with the Plaintiff he had access to confidential material of the Plaintiff's which was vulnerable to misuse. I would read down the 12 month restraint in his contract to nine months from 11 February 2021 to account for my view that while he was exposed to important information, much of this would not be retained or remain relevant for longer than this period.
Considering the important role Mr McMurchy played in the strategy of BrightHR and the information he would have retained in doing so, as well as the fact that he will now be working with Mr Kumaran with whom he can combine his knowledge for the benefit of the Second Defendant, I would grant injunctive relief to restrain the pair from using their acquired knowledge and familiarity with the Plaintiff's confidential information.
I would invite the parties to send to my Associate short minutes of order reflecting these reasons. I will reserve the question of costs and will hear the parties on this issue if required.