A recent decision of the Supreme Court of NSW (confirmed on appeal by the NSW Court of Appeal) highlights the legal and financial damage that can come from inadvertently publishing defamatory statements about former employees to third parties.
In Manefield v CCNSW, which involved litigation between an employer and its former executive, substantial compensation was awarded after an employer failed to obtain proper advice about lawfully enforcing post-employment obligations.
How could this employer – and others like it – have avoided the pitfalls and traps that can arise when trying to prevent a former employee from unfairly competing with you?
Child Care NSW (CCNSW) sent a defamatory letter to its membership after Mr Manefield, an ex-employee, emailed CCNSW and other child care centres seeking their cooperation in the launch of a new enterprise he had started, which was to provide services to child care centres throughout Australia.
The judge found that CCNSW's letter conveyed numerous defamatory imputations about Mr Manefield, and awarded him $150,000 in damages for defamation plus indemnity costs.
Instead of communicating directly with its members about the post-employment dispute with Mr Manefield, CCNSW should have instead written to Mr Manefield and reminded him of his ongoing duty of confidence, and that those obligations survived the termination of the employment relationship.
CCNSW should also have outlined its concerns and requested written undertakings from Mr Manefield that he would refrain from any communication with the CCNSW's members, reserving its right to take formal steps to enforce his duty of confidence and obligations to CCNSW in the event that he failed to do so.
This case demonstrates the importance of seeking professional legal advice before attempting to enforce post-employment obligations to ensure that any action taken is lawful.
The background to Manefield v CCNSW
From 7 February 2006 to 16 May 2008, Mr Manefield was employed as the Executive Officer of Child Care NSW. CCNSW is an incorporated employers' association the primary function of which is to act as the employers' representative in industrial matters.
On 16 May 2008, Mr Manefield was dismissed from his employment with CCNSW for performance-related reasons. Importantly, there was no restraint of trade clause in Mr Manefield's contract of employment, and as such his contract didn't stop him from competing with CCNSW following the termination of his employment.
After his dismissal, Mr Manefield and a number of colleagues established a company called Early Learning Australia. The company planned to offer a number of services to child care centres throughout Australia, and the team began preparations for a media launch to announce the formation of the enterprise. As part of this preparation, Mr Manefield sought, on behalf of Early Learning Australia, the cooperation of CCNSW and other child care centres throughout Australia. He sent an email seeking such cooperation on Friday 4 July 2008, inviting discussion and providing his telephone number.
Instead of contacting Mr Manefield or Early Learning Australia directly, CCNSW sent the following letter to "all or almost all" of its 650 members on the following Monday, 7 July 2008:
"Dear Child Care Operators,
As some of you may be aware, Mr Bruce Manefield is no longer in the position of Executive Officer of Child Care NSW. A decision to terminate Mr Manefield's services was taken by the Executive following a meeting between nominated representatives of the Executive and our Industrial Relations Advisor, Mr Peter Rochfort, with Mr Manefield on Friday 9 May, 2008.
Members should be advised that Mr Manefield remains under ongoing duty of confidentiality [sic] to the Child Care NSW in terms of information to which he has become privy by virtue of and during the course of his employment, relating to the affairs, both financial and commercial, of the Child Care NSW and its members. This information includes, but is not limited to, membership lists. We have reason to believe that Mr Manefield is in the process of contacting members, and we suspect that he is availing himself of confidential information in order to do so.
Members are advised to respond cautiously to any approach by Mr Manefield, or any person acting in connection with Mr Manefield, particularly given the legal ramifications which may arise ... We, the Executive, invite you to refer any contact from Mr Manefield, or any entity with which Mr Manefield is associated, to any member of the Executive, who will respond as necessary.
We are also contacting Mr Manefield directly to remind him of his legal obligations.
Child Care NSW Executive Committee"
Unsurprisingly, Mr Manefield abandoned the project after it became apparent that the members of CCNSW would have nothing to do with him or Early Learning Australia.
Almost four months later, on 30 October 2008, Mr Manefield's solicitors wrote to CCNSW complaining about his dismissal and providing a Concerns Notice in relation to the allegedly defamatory letter, pursuant to NSW defamation legislation.
Mr Manefield argued that he had been defamed because CCNSW's letter to the membership alleged that:
he had breached his duty of confidentiality to CCNSW;
he had contacted the membership through improper use of a CCNSW membership list;
he lacked trustworthiness; and
he had breached his legal obligations to CCNSW.
At this time, an offer was also made to accept payment of compensation for damages in the sum of $40,000, and costs in the sum of $5,000.
CCNSW did not respond to the letter, and Mr Manefield subsequently commenced legal proceedings.
On 10 June 2009, a statement of claim was filed, and CCNSW then filed its defence on 10 July 2009. The defence denied that CCNSW's letter defamed Mr Manefield and, in the alternative, raised a defence of qualified privilege.
During the course of the litigation it was discovered that, in addition to writing to the membership of the association, CCNSW had planned to send the following draft letter directly to Mr Manefield:
"Dear Mr Manefield
I have received your e-mail promoting the concept of Early Learning Australia (ELA). I place you on notice that Child Care New South Wales (CCNSW) requires you to immediately cease and desist from any further activity in the name of Early Learning Australia. By your doing so, it is our view that you are acting in breach of the confidentiality provisions which comprised part of the terms and conditions of employment with CCNSW insofar as you are using confidential information gained by you whilst in the said employ, information which is not otherwise available.
The information being used clearly and unambiguously paraphrases decisions taken by CCNSW and others in meetings which were held privately and intended to be availed by the various Associations participating in the meeting, and not for the persons attending the meeting who were in attendance in order for them to fulfil their administrative responsibilities only.
You are placed on further notice that unless we receive your unequivocal and irreversible undertaking that you will cease your soliciting child care operators in the way you are doing at present, CCNSW will commence legal action against [you] seeking to obtain an injunction restraining you from further activity which [is] in breach of your obligations to observe an ongoing duty of confidentiality, together with an order for payment [of] the costs involved in taking such action and for damages to the extent they are identified.
(President) Child Care New South Wales"
The findings in this case
The trial judge (whose ruling was upheld on appeal) found that the letter CCNSW sent to its membership conveyed numerous defamatory imputations about Mr Manefield, including that:
he was an untrustworthy person prepared to use devious and underhand means to take members away from the defendant;
he was a dishonest person prepared to deceive the defendant's members;
he had attempted to deceive members of CCNSW;
he had breached the obligation of confidentiality which he owed to the defendant;
he had breached his legal and contractual obligations to his former employer; and
by his mismanagement and incompetence, he had damaged the standing of the defendant in the child care community and created the difficulties which it had faced.
The strategy adopted by CCNSW to protect its valuable information was fundamentally flawed from the outset.
The court found that the purpose of CCNSW's letter to members was not to inform them about a topic in which it reasonably believed they had an interest. Instead, it was to "poison the minds of members" against Mr Manefield and to "blacken his name" so that they would have nothing to do with him or his business. This finding destroyed CCNSW's defence of qualified privilege.
About the authors
Andrew Tobin is a partner, Brett Bolton is a special counsel, and Damon King is an associate at HopgoodGanim Lawyers