Authority Sends Strong Signal to Anyone Breaching Non-Solicitation Clauses
- Business Central
- Oct 26, 2024
- 3 min read
Updated: Nov 5, 2024
Evolution Traffic Management Limited (Evolution) operated in the traffic management industry. From 18 July 2022 to 28 October 2022, Evolution employed Mr Sinclair as a Depot Manager. A significant part of his role involved the recruitment and management of Evolution’s employees. Due to his role, he also gained detailed knowledge of Evolution’s employees’ skills, experience, pay rates, and personalities. His employment agreement included a non-solicitation clause stating that were he to leave, he was not to solicit employees away from Evolution for three months.
Mr Sinclair resigned in October 2022 in the midst of a disciplinary process relating to allegations of misconduct. Evolution reminded him, both orally and in writing, of his contractual obligations relating to confidentiality and restraint of trade. Mr Sinclair’s next employment was with Construct Civil Limited (CCL).
Evolution became aware that Mr Sinclair was actively seeking to recruit its staff and asked Mr Sinclair to stop at once. Mr Sinclair responded that the concerns were ill-informed and he had not breached his obligations. Evolution became aware that four of its employees either partly or fully left the company and went to work for CCL.
Evolution lodged a claim in the Employment Relations Authority (the Authority). It sought a declaration that its non-solicitation restraint was enforceable, that Mr Sinclair breached it on at least four occasions, and that penalties should be imposed. Moreover, Mr Sinclair encouraged a specific Evolution employee, Mr Kiikoro, to breach his employment agreement, which warranted a penalty. Mr Sinclair did not attend mediation or the Authority’s investigations.
The Authority found that Mr Sinclair’s non-solicitation restraint, lasting for three months after his employment, was reasonable and enforceable. Evolution had a legitimate proprietary interest in protecting its workforce for a limited period of time. In turn, Mr Sinclair’s remuneration was reasonable consideration for the restrictive covenants he had entered into. The four individuals who left Evolution to work for CCL confirmed in the hearing that Mr Sinclair had solicited them to work for CCL while they were employed by Evolution. Mr Kiikoro confirmed he undertook work for CCL while still employed by Evolution. CCL itself also confirmed that Mr Sinclair had arranged employment of these individuals directly rather than through job advertisements.
The Authority found Mr Sinclair clearly breached the non-solicitation clause of his employment agreement in five instances. It heavily criticised Mr Sinclair’s actions. It found he demonstrated no regard to his legal obligations during and after his employment. He also showed deliberateness in misleading Evolution about what he was doing after his resignation.
Evolution relayed the financial impact of Mr Sinclair’s actions, including the loss of a key contract. It also experienced inconvenience and disruption when Mr Kiikoro, rostered on to do critical work for Evolution, was encouraged by Mr Sinclair to carry out work for CCL. Evolution also had to spend significant time and effort locating CCL’s employment documents, as the company liquidated in May 2023.
In line with similar cases, the Authority imposed a significant penalty on Mr Sinclair to act as a strong deterrent to others. The entire value of the penalty went to Evolution along with a significant contribution to its costs. Mr Sinclair was ordered to pay Evolution $40,027.20, consisting of $25,000 for penalties, $11,500 in legal costs, and $3,527.20 as reimbursement of disbursements.
Evolution Traffic Management Limited v Sinclair [[2024] NZERA 128; 05/03/24; R Larmer]
