The longstanding battle between HRX and Talent2 has erupted again, this time with Talent2 losing out to HRX. A number of HRX employees have left HRX for Talent2. However it was the departure of Mr Scott to Talent2 that led to Talent2, that was not even a party to the litigation, being ordered to pay HRX's costs! To discover how an erstwhile poacher might get caught out on costs.
HRX v Scott
Mr Scott left HRX to work for a competitor, Talent2. His contract said he could not work for a competitor for 12 months. He told Talent2 that he was restrained for 6 months and that he had complied with all the restraints, other than the general non-compete.
HRX not only won the case, but got costs against Talent2, a non-party, because Talent2 had funded the defence of the case by Mr Scott. Mr Scott took HRX confidential information with him to Talent2.
After HRX had started the case, Talent2 found out that Mr Scott had taken HRX's confidential information (although he had not used it) and had solicited some HRX clients. Talent2 than had Mr Scott resign his employment and withdrew its support from Scott’s defence of the litigation by HRX. However, this was too late, said the court, and as the case would not have proceeded without Talent2's financial support, ordered Talent2 to pay the costs.
Chief Justice Bergin said (at 75 to 77):
“It is incumbent upon employers who effectively poach their competitors' employees to ensure that those employees are not acting in breach of their obligations to their former employers, particularly where the consequence of such breach is a benefit to the new employer. When a new employer "stands up to" and funds litigation brought by the former employer against its new employee in circumstances where there are breaches of obligations owed to the former employer, the new employer may be at risk of an order being made against it under s 98 of the Act. Of course it will depend upon the circumstances of each case.
Notwithstanding that the defendant would have benefited personally from the successful outcome of the litigation in retaining his employment, Talent2 would also have benefited from such an outcome in keeping an experienced employee in the competitive market in Perth. I am satisfied that but for the funding by Talent2, the litigation would not have been necessary.
The power to award costs against a non-party should be exercised sparingly. However I am satisfied that an order should be made that Talent2 pay HRX's costs of these proceedings.”
The lesson is to be careful when poaching staff from a competitor. Before jumping to defend your new employee, make sure you get full details about the prior employment, the post contractual obligations and what the employee has done with any ex-employer information or property.
HRX Pty Ltd v Scott [2013] NSWSC 451.