Damage must be demonstrated to restrain competitor

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Damage must be demonstrated to restrain competitor

The Victorian Supreme Court has granted an injunction restricting a consulting company from directly or indirectly approaching or soliciting clients from a competitor.

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The Victorian Supreme Court has granted an injunction restricting a consulting company from directly or indirectly approaching or soliciting clients from a competitor.

The decision in Towers, Perrin, Forster & Crosby, Inc v Taplin & Ors [1999] VSC 439 (12 November 1999), highlighted the need for companies seeking injunctions to restrain former employees from competition, to be able to demonstrate by reference to detailed long-term business plans the significance of the potential loss of business caused by the former employees' unlawful conduct.

Background

Mr. Taplin was the Manager of the Global Custody Consulting Services (GCCS) unit at Towers, Perrin & Foster (Towers). In August 1999, Towers informed Mr Taplin that they intended reorganising the GCCS unit. He was advised not to share this decision with anyone until a communication strategy had been formulated. Notwithstanding Towers advice to Mr Taplin, the majority of the GCCS unit knew of the reorganisation by 27 August 1999.

By late August 1999, Deloitte Touche Tomatsu (Deloitte), a competitor of Towers, had become aware of the reorganisation of the GCCS unit at Towers. On 7 September 1999, when Towers announced to the GCCS team that the reorganisation was taking place, most of the affected employees had accepted positions with Deloitte. The affected employees, excluding Mr Taplin, had resigned from Towers on the day prior to the announcement, thereby giving one month's notice.

Following a meeting between Towers and Deloitte, where Towers advised Deloitte that they intended continuing to consult in the particular line of business, Towers advised the affected employees not to access any information for the use of their competitors.

Mr. Taplin terminated his employment summarily on 28 September 1999, on the grounds that Towers had repudiated his contract of employment. On 30 September 1999, Deloitte advised Towers that Mr Taplin had accepted an offer of employment with them.

Towers wrote to all of the affected employees advising them that they had not provided reasonable notice of the termination of their contracts of employment. Towers also advised Mr Taplin that they had rejected his purported termination, advising him that his contract with Towers remained on foot.

Towers sought various orders to restrain "senior employees" working for Deloitte and to restrain Deloitte from performing work with Towers'.

The Decision

In failing to grant the majority of Towers' application, the Court granted an injunction preventing Deloitte from approaching either directly or indirectly, or from soliciting, 27 of Towers' clients, and from carrying out work in the area for these clients. The injunction was granted until 10 January 2000, being a period of about two months.

The Court granted the above portion of the application in an attempt to nullify any springboard advantage, arguably improperly gained by Deloitte, in competing with Towers. The Court did not stop the former GCCS team members (including Taplin) from working for Deloitte, as to do so would be to jeopardise their employment and employability. The Court was not prepared to do this given the "nebulous nature of the business model" proposed by Towers.

In determining the application, the Court weighed up the damage to Towers, including future damage, as a result of the conduct, including threatened conduct, of the defendants. Given that the future of the particular consulting business at Towers was uncertain, the damage to Towers future business was difficult to determine. Accordingly, the Court was unwilling to put the senior employees on the sidelines for any stipulated period.

The Court may have responded differently to the application to restrain the employees if Towers had been able to show the damage Towers were likely to experience, as a result of their employees being poached. Accordingly, this decision supports the need for companies to have comprehensive business plans before undertaking reorganisations which might cause valuable senior employees to leave.

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