Employer successful in $600k claim against former employee
A former employee of a real estate office has been ordered to pay over $600,000 to his former employer for breaching his duty to act in his employer’s best interests.
District Court Judge Robertson ordered Robert Midgley to pay $632,987.28 (which included $254,359.84 in interest) to his former employer Ken Guy Real Estate Pty Ltd (Ken Guy). He has also ordered Mr Midgley to pay Ken Guy’s legal costs on an indemnity basis.
This decision highlights that employers can be successful in reclaiming monies from their employees who breach their obligations to their employer. Mr Midgley had a duty to act in a manner that was compatible with Ken Guy and not harm the business of Ken Guy in the furtherance of Mr Midgley’s own interest.
In April 2007, Mr Midgley who was employed as the manager of the Noosa Office of Ken Guy, set up another entity using Ken Guy’s name which he registered as Ken Guy Real Estate Bli Bli. Mr Midgley received substantial income from the sales through this entity. Ken Guy did not consent to Mr Midgley operating a business in the Ken Guy name and was not aware of Mr Midgley's actions until discovering the arrangement in August 2007.
However, Ken Guy did not commence a claim in the Maroochydore District Court until 2013. Ken Guy commenced a claim for breach of contract, breach of fiduciary duty by Mr Midgley and/or seeking an account of the monies on the basis of fraud.
Nature of the Relationship between the Parties
One of the central issues for determination was confirming the nature of the relationship between the parties.
Judge Robertson held that it was an employer and employee relationship and it was never a partnership arrangement as contended by Mr Midgley. Ken Guy produced evidence which strongly corroborated this, including a letter of appointment detailing the employment relationship which included a salary and 50% profit share. Ken Guy provided this same remuneration package to the other managers of the Ken Guy real estate offices.
Judge Robertson stated that it was “inconceivable” Ken Guy would enter into a “secret oral partnership agreement” and “not expect payment of some kind for the rent, goodwill” or for Mr Midgley not to share in the “losses” of the business if they were indeed partners.
He said that Mr Midgley had “acted deliberately to deceive” Ken Guy when he retained commission income from the sales through the Bli Bli office that would have otherwise gone through the Ken Guy Noosa office.
Judge Robertson held that Mr Midgley had breached his fiduciary duty that he owed to his employer Ken Guy. In light of this, he was liable to pay Ken Guy a portion of the commissions received from the Bli Bli office as equitable compensation and Ken Guy’s legal costs.
This decision is important as it highlights that employers can be successful in claiming compensation against employees who have breached their duties and caused the employer to suffer a loss.
Tips for Employers
- you have written contracts of employment in place clearly setting out an employee’s terms and conditions of employment to minimise any arguments that the relationship is not that of employee and employer; and
- if you have managers in different locations to your head office, maintain regular check ins and make sure you have access to all accounts and transactions to minimise the risk of any inappropriate conduct.
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