A long‑serving truck sales manager's quiet moves end in a costly Employment Court ruling
The Employment Court has awarded an employer $900,000 in damages after finding its former sales manager unlawfully undermined a core supplier relationship and key customers while still employed.
The court found that the former sales manager at a Palmerston North truck dealership breached his contractual and common law duties of fidelity and good faith in the months leading up to his resignation in September 2023.
For more than a decade, the employee had been the primary point of contact with a major overseas manufacturer of specialist truck equipment, under what both sides treated as an exclusive distribution arrangement for the New Zealand market.
The court recorded that he "continued to be the principal point of contact … and developed good relationships with [the supplier's] principal representatives."
From April to mid‑August 2023, however, he began working behind the scenes with the supplier, a competitor, and several major fleet customers to facilitate direct dealings that would bypass his employer.
Breaches while still employed
The court accepted evidence that the employee used personal and work channels to connect the supplier directly with a competing distributor and major customers, encouraging discussions about "how we may be able to help [him] set up the [supplier's] business in New Zealand" and "navigate around his restraint of trade for three months."
He also passed on information suggesting his employer might struggle to service the supplier once he left.
"All those matters were in breach of his obligations of fidelity and good faith and occurred while [the worker] was still an employee of [the employer]," the court ruled.
While employees are allowed to take preparatory steps to compete after leaving, they cannot, while still employed, act contrary to their employer's interests or damage its goodwill.
Here, the court found the employee's conduct breached his duty of fidelity and good faith and specific contract clauses requiring him to "use best endeavours to promote, develop and extend the Employer's business interests and reputation and not do anything to its detriment."
He also breached a non‑solicitation clause by endeavouring to "discourage customers … from dealing with [the employer] in relation to products available from [the supplier], and [discouraging the supplier] from continuing its exclusive arrangement."
The court stopped short of finding a breach of confidentiality for sharing customer and supplier email addresses, holding that those details were not inherently confidential and were not treated by the employer as such.
"[The employee's] actions in facilitating interactions between [the supplier] and customers directly, rather than through [his employer] were, however, part of the pattern of him acting against [the employer's] interests," the court ruled.
On loss, the court rejected the employer's full claim for projected lost profits of up to several million dollars.
Instead, it adopted a "loss of a chance" analysis, concluding that the employee's conduct was a very substantial factor in the supplier moving from exclusive to non‑exclusive terms and customers attempting to work directly with the supplier.
By acting before he lawfully could, the employee deprived the employer of a realistic opportunity for "a smooth transition" to a replacement and to "shore up its relationships" during his notice period and the six months after his departure.
The court held the employer had "an appreciable chance of achieving this" and that "real value can be attributed to that loss of opportunity," fixing damages at $900,000, a little over 40% of the modelled loss.
