Could Senior Employees Enjoy Fewer Freedoms Than Their Juniors?

Many people think the relationship between employer and employee is defined only by their employment contract and legislation such as the Fair Work Act. In some cases, very senior employees owe duties to their employers over and above those outlined in the contract.

In Bayley & Associates v DBR Australia, the Federal Court found that a General Manager who had secretly emailed his employer’s confidential information to his own company had violated not only copyright and contract law, but also other special legal duties which had been created by his position of power. These duties are known as ‘fiduciary duties’.

The issue:

Mr H was a very senior executive (General Manager) at Bayley & Associates for under a year. During that time, he set up his own company, DBR Australia Pty Ltd.

It was only after Mr H left the company that Bayley & Associates discovered that he had been secretly engaged in activities which profited his own company at the expense of Bayley. Those activities included:

• Carrying on business negotiations and diverting clients away from Bayley;

• Forwarding confidential business documents to a DBR Australia email address; and

• Securing a copy of Bayley’s library of courseware for use by DBR.

Bayley & Associates sued both Mr H and DBR Australia.

The law:

The Federal Court judge found that senior executives are in a privileged position in which they have access to confidential information. Members of senior management, should they abuse their employer’s trust, can cause enormous damage to a company.

For this reason, it was held that employees with managerial responsibilities will generally owe additional legal duties to their employer besides those already in their employment contract.

In Mr H’s case, as General Manager he was the second most senior employee in the company and was in a position of great trust and managerial responsibility. The judge found that, due to this relationship of trust, he did owe special legal duties to his employer beyond those in his contract.

The Federal Court found that by engaging in the conduct described above, Mr H had breached not only his contract of employment, but also these special fiduciary obligations.

Relevance to me:

If you are in a position of seniority at a company in which you have a degree of freedom as to how you perform your work duties, it is very likely that a court would find that you owe fiduciary duties to your employer.

Your employment contract will not change if these special obligations are found to exist – rather the terms of the contract will shape the way these duties are defined by the court.

Nonetheless, these fiduciary duties may require more than your obligations under your contract. Senior executives should be very careful to ensure that they do not abuse their position of trust, particularly when they have external interests which could be in conflict with those of their current employer.

(Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341)