A recent decision handed down in the Supreme Court of Victoria found that a group of senior employees did not disclose their involvement in the purchase of two businesses owned by their employer.  The Court found that failure destroyed the necessary “confidence” essential to the relationship of employer and employee and was a breach of the employees’ duty.

The Court ruled that, by not disclosing their involvement in the purchase of the businesses, the managers were free to influence the sale process and their employer was prevented from taking steps to forestall that by, for example, putting in place a Chinese wall restricting the flow of information about the sale to any of the managers, dismissing the managers, managing the sale process in a different way or even cancelling the sale altogether. The fact that the managers did not in fact have any material influence on the terms of the sale agreements or the manner of sale in each case, was deemed irrelevant.

The judgement in question was handed down on March 20 by Justice Peter Vickery in the case of Hodgson v Amcor.

The Court found that one of the senior managers, Hodgson, secretly provided consultancy services to an unrelated business, which would have assisted that business to expand its operations in direct competition with the company, Amcor. The Court found that Hodgson did not inform Amcor of the relevant facts at any time, despite having a conflict of interest between his duty to Amcor and his personal interest.  The fact that Hodgson may have been obliged to keep the future plans of the competing business confidential only served to highlight the conflict that Hodgson had placed himself in by his conduct.  The Court found that by withholding this useful information from Amcor, Hodgson, as one of its senior managers, engaged in conduct which was incompatible with the fulfilment of his duty to Amcor, and was destructive of the necessary confidence between Amcor and him.

There are three lessons for HR practitioners in this decision:

• Generally speaking, employees owe their employer implied duties of loyalty, honesty, confidentiality and mutual trust.  These arise under the employment contract.
• If an employee engages in conduct in respect of an important matter (not trivial) and the conduct is incompatible with the fulfilment of those duties, or is destructive of the necessary confidence between the employee and the employer, the employee will be in breach of common law duties and the employer will have grounds for summary dismissal.
• If the employee is in a position where his/her personal interest (or those of others) may conflict with the duties of loyalty, honesty, confidentiality and mutual trust owed to the employer, the employee must inform the employer of the relevant facts and circumstances. If after being told of the conflict the employer consents to the employee engaging in the conduct, the employer cannot later seek to treat the conduct as justifying summary dismissal.

To view the Supreme Court judgment in full go to Hodgson v Amcor Ltd; Amcor Ltd & Ors v Barnes & Ors [2012] VSC 94 (20 March 2012) at http://www.austlii.edu.au/au/cases/vic/VSC/2012/

Charles Power is a partner at the law firm, Holding Redlich, and is an accredited workplace relations specialist.