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Friday, 12 October 2012

Accountant ordered to pay damages for using confidential information to poach clients

Source: Belinda Winter Partner, Cooper Grace Ward Lawyers

The New South Wales Supreme Court has ordered an accountant to pay $117,995 in damages after he used his former employer’s confidential information to poach at least 776 clients.

In 2002, Mr Denis Cummins, an accountant, sold his practice to Commercial & Accounting Services (Camden) Pty Ltd (Company). Following the sale, Mr Cummins continued to work for the Company 17 hours per week. The agreement for sale contained a clause that restrained Mr Cummins from competing against the Company for a period of at least 3 years within the radius of 10 kilometres from the business address of the Company’s accounting practice.

In early 2009, Mr Cummins told the Company that he would end his employment on 30 June 2010 and that he intended starting an accountancy practice in competition with the Company.

By agreement, the parties ended Mr Cummins’ employment early on 30 June 2009. Mr Cummins communicated to the Company that he intended on taking ‘a half dozen or so clingy clients’ and this was agreed to by the Company.

On 1 July 2009 Mr Cummins wrote to an unknown number of the Company’s clients informing them that he had moved from the Company and was now practicing in his own firm. The letter contained an authority for clients to use to transfer their files from the Company to his new practice. It was claimed by Mr Cummins that the contact details for these clients were taken from memory and his own lists, and that Mr Cummins did not use any of the Company’s client lists. This was not accepted by the Court. To the contrary, the Court determined that Mr Cummins did use the Company’s client lists and that he knew that such client lists were confidential to the Company.

To determine the appropriate damages for Mr Cummins use of the Company’s confidential information, a robust approach was applied by the Court. It was determined that 75% of the loss of goodwill of the Company should be attributed to Mr Cummins actions. This was calculated to be equal to $117,995, and damages of that amount were ordered.

Lessons for employers This case highlights the importance for employers to protect their confidential information. Adequate contractual protections should be in place, via a business sale agreement and contract of employment. Further, proactive controls should be implemented to prevent the unauthorised use of confidential information.

If you do not have written employment agreements or your agreements do not contain effective restraints we can provide agreements that maximise your prospects of preventing employees taking your clients. You can contact Belinda Winter on 61 7 3231 2498 to discuss how we can help protect your business goodwill.

Commercial & Accounting Services (Camden) Pty Ltd v Cummins [2011] NSWSC 843 (3 August 2011)