Misuse of confidential information by ex-employees in New Zealand – is this a case for the ERA?

Thursday 21st September 2017

Disputes involving ex-employees and causes of action relating to retention and misuse of confidential information can give rise to disputes over jurisdiction.  Do such disputes fall into the exclusive jurisdiction of the Employment Relations Authority (ERA) or should they be determined by the Courts?

The recent decision of the High Court in Ecostore Company Limited v Worth[1] provides useful clarity over the jurisdiction of the ERA to determine disputes involving ex-employees.

Executive summary

The ERA has jurisdiction over matters based directly on an employment agreement – for example, a breach of a term of an employment agreement requiring confidentiality.  However, the same factual issues can be properly put before the High Court if pleaded as breach of an equitable duty (e.g. breach of confidence) or copyright infringement.

In cases involving claims for relief which include a permanent injunction and damages or an account of profits for misuse of confidential information, the ERA “is not well-equipped to provide the remedies sought or the processes required to provide a principled outcome according to law”[2].  These are further indications that such claims are properly brought before the High Court and not the ERA.

About the Ecostore case

Ecostore Company Ltd is a manufacturer and distributor of household cleaners and body-care products.  It seeks to produce products that exclude toxic and unnecessary chemicals, making them safer for people and the environment.  The defendant in this case, Ms Worth, was employed by Ecostore as a development chemist under two short-term contracts.  Ms Worth was then employed in a similar role by a direct competitor of Ecostore.

Ecostore sought an injunction in the High Court restraining Ms Worth from using its confidential information, requiring the return or destruction of all documents containing confidential information, and damages or an account of profits for any misuse of the information. Ecostore advanced three causes of action: breach of confidence, conversion, and breach of copyright. All three causes of action were founded on the retention and misuse of the same confidential information.

Counsel for Ms Worth applied to strike out all causes of action on the basis that the High Court was not the proper forum because the ERA had exclusive jurisdiction to deal with all three claims.

The question for the Court was one of jurisdiction – the High Court either had jurisdiction or it did not.  The Court confirmed that the parties could not confer jurisdiction on the Court by agreement so the issue had to be confronted and dealt with.

Did the High Court have jurisdiction to determine the claims?

On the issue of jurisdiction, Ms Worth’s counsel relied on the decision in Bowport Ltd v Alloy Yachts International Ltd[3].  In that case, three causes of action were pleaded against a former employee for breaching the terms of his employment agreement. These were for a breach of the confidentiality provisions in the employment agreement and breach of his duties of fidelity and confidence in terms of that agreement.  The ERA was held to have jurisdiction in that case.

Bowport remains good law and the analysis set out in the case is perfectly conventional.  However, the claims at issue in Bowport were entirely founded on the employment contract.  The claims could not be determined without reference to the express terms of the employment agreement – the Court was therefore engaged in the “interpretation”, “application” and “operation” of the employment agreement therefore rendering the case within the exclusive jurisdiction of the ERA.  The same position did not apply in Ecostore.

In Ecostore, the rights relied on were: Ecostore’s right in equity to enforce a duty of confidence in respect of its confidential information, its property rights enforceable through the tort of conversion, and its rights as a copyright owner conferred under the Copyright Act 1984.

At paragraph [30] the Court confirmed:

  • Using Panckhurst J’s formulation in Pain Management, this is a case “where the opportunity to breach the right or interest at stake arose in the context of an employment relationship” but it is not one “where some employment right or interest is truly at stake”. Or, adopting Baragwanath J’s expression in BDM Grange, the “essential character” of each of these causes of action is not “to be found entirely within the employment relationship itself”.  It is therefore not an “employment relationship problem”.

The Court’s general jurisdiction to deal with Ecostore’s claims in equity, conversion and for breach of copyright was not ousted by the existence of an employment agreement and a prior employment relationship.

Final comments

Ecostore confirms that the starting point is to identify the nature of the problem, the “gist” of the dispute, and ask whether it is truly an employment relationship problem that must be dealt with in the ERA.

Useful tip: if taking action against a former employee for retention and misuse of confidential information, it is worthwhile claiming ordinary tortious misuse of confidential information (without relying on an employment agreement) to keep jurisdiction in the High Court.

This article is intended to summarise potentially complicated legal issues, and is not intended to be a substitute for individual legal advice. If you would like further information, please contact a Baldwins representative.

[1] [2017] NZHC 1480 (29 June 2017)

[2] Ecostore at [31]

[3] [2004] 1 NZLR 361 (HC)

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