June 2014... Some businesses tend to take a fairly relaxed approach to having property documented employment agreements, despite the fact that it is a breach of the Employment Relations Act. Another good reason for having a written employment agreement in place is to be able to refer back to it if things go wrong. A recent Christchurch case provides a useful example of the remedies available to an employer where a former employee decides to take on their old company in a competing business.
In Foot Science International Limited v Jin Xu, the High Court had to rule on an application by Foot Science for an interim injunction against its former employee Mr Xu. Foot Science International Ltd manufactures orthotics for medical and retail sales and has distributors in Australia and Europe. Mr Xu was employed in 2005 initially as a machine operator and subsequently as a research and development co-ordinator. While in that research and development role he developed a heating machine used to heat the orthotic in a shoe so as to mould the orthotic to the customer’s foot. That became part of Foot Science’s manufacturing process.
Mr Xu’s employment agreement included a confidentiality clause which provided that any information acquired in the course of his employment was confidential unless that information was already publicly known – that included strategies, processes, materials, costs and trade secrets relating to Foot Science’s business and customers.
In 2011 Mr Xu left Foot Science and later incorporated his own trading company Gait Technology International Ltd. In September 2013 he sent letters to Foot Science’s overseas distributors introducing himself, advising that he formerly worked in the manufacturing department at Foot Science and that he had developed “rich experience in both manufacturing and developing orthotic products during the time.” He said that he had started his own orthotic business and enclosed samples of his product with the letter.
Perhaps not surprisingly, Foot Science obtained a copy of the letter and samples from one of their distributors and concluded that Mr Xu’s product was a copy of the Foot Science orthotic product. Foot Science then filed proceedings and applied for an interim injunction to stop Mr Xu and his company from manufacturing, marketing or distributing any copied products or using any part of the Foot Science manufacturing process. In support of that application Foot Science claimed Mr Wu had breached the confidentiality obligation in his employment agreement, that he had breached another obligation in his employment agreement by manufacturing a heating machine and also breached copyright in relation to various elements of the Foot Science manufacturing process.
On the breach of confidence point, at a full hearing Foot Science would need to prove three elements to establish a breach: first, that the information was confidential and not publicly known; second, that the information was made available to Mr Xu in circumstances of confidence and third, that Mr Xu has made unauthorised use of the information to the detriment of Foot Science. For the purposes of the injunction application the judge only had to be satisfied that there was a “serious case to be tried” – and he was. He regarded Mr Xu’s written letter to Foot Science’s distributors as a “significant starting point” and accepted Foot Science’s evidence as persuasive. The Court therefore granted the interim injunction against Mr Xu and his company.
While Mr Xu obviously did not help his cause by including such a detailed history of his previous work experience in his written announcement to the market, the comprehensive employment agreement with confidentiality obligations included was a sound basis for Foot Science to launch its case against the former employee and protect its business.
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